The rationale for a digital euro nowadays is based more around geopolitics and sovereign capabilities. As that open letter to the European Parliament put it:
Today, Europe’s payment system is dominated by a handful of non-European corporations. In thirteen euro-area countries, basic retail payments now rely entirely on international card schemes—without any domestic alternative. This dependence on foreign (US) payment providers exposes European citizens, businesses and governments to geopolitical leverage, foreign commercial interests, and systemic risks beyond Europe’s control. Recent developments have made this more than a hypothetical risk. Without a meaningful digital euro, our dependence will deepen as US-backed private digital currencies are gaining ground. Europe will lose control over the most fundamental element in our economy: our money.
Of course, not everyone is convinced. Many argue that a CBDC would also come with a loss of privacy, or that if Europe wants to reduce its reliance on Visa and Mastercard, then simply building a European card payment infrastructure is an easier step.
In its February poll, the Clark Center addressed the kinds of fears mentioned in the open letter, querying panelists about both a retail CBDC (for use by consumers) and a wholesale version of the currency (for use by financial institutions). The panel was asked whether “without a retail central bank digital currency (CBDC), Europe risks a further loss of control over its monetary system to foreign payment service providers, including US Big Tech platforms and US stablecoin issuers.” Weighted by confidence in their answers, 67 percent of the panel either agreed or strongly agreed.
“Widespread adoption of dollar stablecoins within Europe would constitute a form of ‘digital dollarization’ with serious macroeconomic implications: It would weaken the ECB’s ability to manage rates in the EZ and it would pose risks for financial stability,” wrote Luis Garicano of the London School of Economics.
In regards to Europe’s wholesale payments architecture, the panel was asked whether “without a credible, modern wholesale settlement solution in central bank money—whether via a wholesale CBDC or equivalent infrastructure—Europe risks a further erosion of payments autonomy.” This time, 86 percent of the panel, again weighted by confidence, either agreed or strongly agreed.
That there was more consensus on the need for a new wholesale settlement solution than there was for a retail system may reflect the fact that, as the question acknowledged, a wholesale system need not involve a CBDC. As Antonio Fatas of INSEAD argued in his answer to the first question, “There is no need for retail CBDC. In fact retail CBDC without alternative payment rails will do nothing about sovereignty. What is needed is strong independence in payments.”
The poll illuminates the enduring support for a digital euro even as policymakers in other economic areas lose interest. And it suggests that as long as there are concerns about overexposure to foreign institutions both on the retail and wholesale sides of the financial world, the idea of a CBDC in the eurozone won’t go out of style.
Duncan Weldon is an economist, journalist, and author who regularly writes for the Financial Times, New Statesman, and other publications. This is an edited version of a column that ran on Booth’s Clark Center website.
