ECB's Isabel Schnabel says a digital euro is the best response to stablecoins, warning that private digital currencies risk undermining monetary policy and financial stability in the euro area.
ECB board member Schnabel signaled the urgent need for a digital euro to counter stablecoins, reinforcing the euro's role in digital finance. The announcement could bolster confidence in the euro as a forward-looking currency, lifting EUR/USD.
It may boost the euro by signaling the ECB's commitment to maintaining the euro's relevance in digital payments, which could increase demand for the single currency in global markets.
The impact is likely short-term as the digital euro remains years away, but sustained ECB rhetoric could support a gradual euro appreciation trend.
If markets view the digital euro as a distant project with little near-term impact, or if the Fed continues raising rates aggressively, the euro's bullish momentum could fade.
As EUR/USD rises on ECB digital euro optimism, the dollar index (DXY), which has a heavy euro weighting, is likely to slip. The DXY's negative correlation with EUR/USD amplifies the effect.
DXY is a basket heavily weighted to the euro. When EUR/USD strengthens on positive euro-zone news, the dollar index typically declines.
The impact should be moderate because the digital euro is a long-term project and the dollar's path is driven mainly by Fed policy and US economic data.
ECB's push for a digital euro poses competitive risks to dollar-pegged stablecoins like USDT. Schnabel's remarks suggest the EU could regulate or discourage stablecoin use, potentially reducing USDT's dominance in European digital payments.
A digital euro would provide a government-backed alternative for digital payments, potentially reducing the demand for private stablecoins in the euro area, especially if regulatory hurdles for stablecoins increase.
USDT is designed to maintain a 1:1 peg to the dollar, so its price should remain stable. However, market confidence and usage metrics might be impacted over time.
ECB Executive Board member Isabel Schnabel said the digital euro is the most effective policy tool to counter stablecoins, which pose risks to monetary sovereignty and financial stability. She argued that private digital currencies could fragment the payments system and erode the ECB's control over monetary policy. The remarks signal growing urgency at the ECB to advance the digital euro project.
She said that issuing a digital euro is the best way for the ECB to respond to stablecoins, which pose risks to monetary sovereignty and financial stability.
Stablecoins could undermine the use of official currencies, weaken the transmission of monetary policy, and fragment the payment system.
The ECB is in the investigation phase, exploring design and technical options, with a potential launch years away.