After the U.S. stablecoin bill passed, the EU accelerates its digital euro initiative

By Long Yue, Wall Street Insights

Facing the rapid advancement of stablecoin legislation in the United States, the European Union is re-evaluating and accelerating its digital euro initiative to safeguard the euro's competitiveness and Europe's financial sovereignty.

According to the Financial Times on August 22, people involved in discussions revealed that the U.S. Congress' passage last month of the "Genius Act," aimed at regulating the $288 billion stablecoin market, has sent shockwaves through Brussels and Frankfurt. The law has instilled a sense of urgency among EU officials, who now believe action must be accelerated.

EU officials have recently been "reconsidering the digital euro plan." Insiders said the swift passage of the U.S. legislation "shocked many people," adding: "They are saying, 'Let's speed up, let's push harder.'"

At the same time, this urgency is driving a major shift in technological approach. EU officials are now seriously considering running the digital euro on public blockchains such as Ethereum or Solana—marking a sharp contrast with earlier expectations of using private blockchains due to privacy concerns.

Concerns Over Dollar Dominance

The U.S. legislative progress in the stablecoin space has intensified long-standing concerns among European policymakers about dollar dominance. Currently, the stablecoin market is overwhelmingly composed of dollar-denominated tokens operated by crypto firms like Circle and Tether, while traditional U.S. financial giants such as Citigroup and JPMorgan Chase are also considering issuing their own stablecoins.

Piero Cipollone, a member of the Executive Board of the European Central Bank, warned in April that the U.S. government's promotion of dollar-backed stablecoins "raises concerns about financial stability and strategic autonomy in Europe." He noted it could lead to "euro deposits shifting to the U.S., further strengthening the dollar's role in cross-border payments."

In contrast, the market for euro-denominated stablecoins remains small—the largest euro stablecoin, issued by Circle, has a market value of only $225 million, dwarfed by the massive dollar stablecoin market. One person involved in discussions said the U.S. bill "is creating conversations that didn't exist before," pushing the EU toward more decisive action.

A Major Shift in Technology Strategy

To meet these challenges, a fundamental strategic adjustment is being discussed within the EU: the technological foundation of the digital euro. Previously, it was widely expected that the digital euro would operate on a private network controlled by the central bank.

However, according to insiders, public blockchain solutions are now being "taken more seriously." Running the digital euro on a public blockchain could theoretically enable transactions anywhere, greatly enhancing its circulation and usability. But this approach also introduces new challenges, primarily user privacy concerns arising from the transparency of public ledgers—precisely the reason officials had previously remained cautious.

Now, in order to compete with the U.S.-led, market-based digital asset ecosystem, the EU appears willing to reassess the trade-offs between openness and privacy.

The Global Central Bank Digital Currency Race

The EU's latest moves exemplify the accelerating global race in central bank digital currencies (CBDCs). The European Central Bank has been researching the digital euro for years, and supporters argue that as cash usage declines, a central bank-backed digital currency will offer the public a secure payment option while helping enhance the euro's international standing.

In this race, China's digital yuan is considered the frontrunner, while the UK is also contemplating a digital pound. For the EU, the direct issuance of a digital euro by the European Central Bank would be a definitive step in affirming the region's commitment to digital assets—as Piero Cipollone stated: "Europe cannot be overly dependent on foreign payment solutions."