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Is sovereignty driving digital euro agenda?

digital euro cbdc

Last Friday, European Central Bank (ECB) Board member Fabio Panetta talked about the digital Euro during a speech in Rome, mentioning sovereignty as the first benefit of launching a central bank digital currency (CBDC).

It’s been highlighted many times that two thirds of European card payments are through US-based Visa and Mastercard, and there’s also PayPal in digital payments. Card payments are the key reason that 20 banks created the European Payments Initiative.

“The ‘colonisation’ of the European payment system is not an imminent danger,” said Panetta. But he pointed to the rise of stablecoins to over $120 billion combined with the expansion of Big Tech into finance. The response to the two trends should be addressed by more than just supervision and regulation, but with a CBDC.

Panetta also spoke of sovereignty in terms of the international role of the Euro, arguing that it could increase the Euro’s suitability as a global invoicing currency, “lessening the global domination of the dollar and reducing global dependency on a single source of liquidity.”

One could argue that the strong emphasis on sovereignty was because it was a speech and hence he needed to highlight fewer points. But it was an extensive talk, and compared to last year’s digital euro report, sovereignty seemed to have far more emphasis.

In March, Mediobanca published a report on the digital Euro that also put monetary sovereignty front and center. The Italian bank argued that while the US and Europe are historical partners, the bonds have been weakened. China is now Europe’s number one commercial partner and US sanctions and tariffs combined with troop withdrawals have lessened US ties with Europe.

Mediobanca argued that a digital currency is uniquely important in Europe for political reasons. It would:

  1. “arm the ECB to defend monetary sovereignty from foreign DC (digital currency), 
  2. support the Commission’s (EC) goal to foster strategic independence and the international role of the € by detaching from US oversight/sanctions, taking back control on payments and building stronger bonds with partner countries, 
  3. add thrust to the inertia for further integration in Europe.”

They may have a point.

As context in Panetta’s talk, before he discussed the digital Euro, he spoke about the need for CBDC more generally, stating it is essential as an anchor for private money. In other words, the ability to convert into central bank money such as cash provides stability to private money. And as the world becomes more digital and cash declines, there’s a need for a digital alternative. Central bankers are starting to sing from the hymn sheet. This is the same primary argument made by Deputy Governor of the Bank of England, Sir Jon Cunliffe, during a recent House of Lords committee on CBDC.

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