Europe's monetary sovereignty challenged by digital dependencies

Piero Cipollone, an Executive Board Member of the European Central Bank, warned that Europe's monetary sovereignty, a core objective of the single currency, faces significant threats from geopolitical and technological developments.

He argued that current dependencies in payments and finance have become excessive, risking Europe's economic destiny.

Central bank money, as legal tender, provides a crucial monetary anchor, and its relevance depends on sound policies and resilient payment systems.

Digitalisation is profoundly transforming these foundations.

A major dependency exists in digital retail payments, where Europe heavily relies on non-European solutions.

International card schemes dominate two-thirds of euro area card transactions, with many countries lacking domestic alternatives.

This reliance results in a loss of fees and data to foreign players, potentially deepening dependencies.

The rise of US dollar-denominated stablecoins further exacerbates this risk, potentially gaining a foothold in Europe and diverting deposits, thus undermining the euro's internal role.

The euro has historically strengthened Europe's sovereignty by pooling national powers, fostering peace, and establishing a strong international role, reducing vulnerability to foreign shocks.

Yet, new geopolitical and technological challenges demand adaptation.

To address excessive dependencies in retail payments, the ECB is preparing a digital euro.

This public option, built on European technology and infrastructure, aims to ensure digital payments across the euro area.

It will enable private payment solutions to achieve pan-European reach and leverage an unparalleled acceptance network.

This reduces reliance on foreign proprietary standards, safeguarding Europe's economic security and monetary sovereignty in the digital age.