The digital euro, a central bank digital currency (CBDC) designed as a digital counterpart to paper currency with equivalent legal value, is currently in its ‘preparation phase’ and set to revolutionise payment systems across the euro area. With already demonstrating benefits such as efficiency, transparency, security and instant transactions, the European Central Bank is spearheading efforts to make retail digital payments faster, infrastructure-independent and available 24/7, including offline.

While the concept of has generated significant excitement, it has also raised concerns among global payment service providers, who stand to lose substantial transaction fees. Banks, too, are wary of a potential surge in . However, ECB researchers that if individual holdings are capped and there are no financial incentives, such as interest payments on holdings, euro area households are likely to convert only a portion of their day-to-day cash holdings into digital form, without triggering a significant outflow of funds from bank accounts.

Payment intermediaries

Assuming a retail digital euro does come to fruition, one significant consequence would be its potential to bypass intermediaries in payment systems--essentially mirroring cash transactions between customers and businesses. Eurozone businesses would benefit from instant access to funds and reduce their reliance on traditional payment infrastructure, providing a significant advantage over existing systems and fragmented payments market. However, the impact on payment service providers could be severe.

Traditionally, major players like Visa and Mastercard have controlled global payment networks, reinforcing the US dollar’s dominant international influence. In the euro area, an average of 379m retail transactions take place daily, and a widespread adoption of the digital euro by the retail sector could challenge this dominance, potentially rendering traditional payment intermediaries and electronic transfers obsolete.

This raises a broader geopolitical question: how will governments respond to the rise of CBDCs? On 23 January 2025, US president Donald Trump signed an prohibiting federal agencies from “undertaking any action to establish, issue or promote central bank digital currencies (CBDCs),” effectively preventing the Federal Reserve from launching a digital currency of its own.

Digital euro issuance

Next, does this executive order have any impact on the development, trials or issuance timeline of the euro area CBDC, the digital euro? Apparently not, according to the initial comments from the ECB. On Friday 24 January, ECB executive board member Piero Cipollone stated during an event in Frankfurt, “I guess the key word here (in Trump’s executive order) is worldwide.” He continued, “This solution, as you all know, further disintermediates banks, causing them to lose fees and clients... That’s why we need a digital euro,” pointing towards that the ECB remains on track with its digital euro development.

The digital euro’s preparatory phase is set to end in October 2025, at which point the ECB’s governing council will decide on the next steps. Additionally, European co-legislators are working to define the legislation for the digital euro, which, once adopted, will enable the ECB to make a firm decision regarding the potential issuance timeline. Therefore, we do not anticipate any delays in the digital euro project as a result of Trump’s executive order at this point.

Sovereign decision

The issuance of legal tender, backed by its central bank, is a sovereign decision, but many countries--either officially or unofficially--use the US dollar as a fallback currency, further reinforcing the greenback’s influence. Currently, some 63 countries are either operating, piloting, developing or exploring retail CBDCs. An executive order from the US could deter some of these countries in the planning phase from moving forward with their own CBDC projects. However, Cipollone in September 2024, “Money is key to sovereignty,” and CBDCs, as the digital equivalent of banknotes, represent “monetary sovereignty in the digital age,” further reinforcing the ECB’s commitment to the digital euro.

Stablecoins

While the Trump administration has expressed opposition to developing a US CBDC, a different actively promoted the “development and growth” of dollar-backed stablecoins, alongside the “issuance and operation of digital assets, including stablecoins.” This stance may seem contradictory at first glance, but stablecoins--cryptocurrencies designed to maintain a stable value by being pegged to reserve assets, such as fiat currency or commodities--differ fundamentally from CBDCs.

Unlike stablecoins, the digital euro would be central bank-issued money, backed by the ECB and European law. Its “security by design” and inherent respect for privacy and data protection standards would make it risk-free. In contrast, the value and stability of stablecoins depend on the credibility of the issuing entity and the enforceability of its promise to maintain the coin’s value. A key concern is that, without a clearly identifiable responsible entity or regulator, enforcing claims in the event of a liability issue could be very difficult, if not impossible.

All in all, to our best understanding, we believe that the ECB’s digital euro project is unlikely to be directly impacted by the current executive orders signed by president Trump and will most likely come to fruition during his four-year presidency.

The ECB declined to comment on the record.