Is a digital euro necessary for monetary sovereignty? Rethinking the CBDC debate
According to an article published on the Centre for Economic Policy Research (CEPR) website, the proposal to issue a digital euro is not a requirement to safeguard European monetary sovereignty, which is primarily preserved through the legal framework that governs the unit of accounts and the central bank’s capacity to manage risks and ensure convertibility. The real challenges, such as dependence on foreign payment systems or competition from private digital assets (stablecoins), should be addressed through regulation, technological competition, and measures that strengthen institutions and the financial ecosystem, rather than the mere issuance of a digital euro (central bank digital currency, or CBDC). Confusing money with payments can risk misdiagnosing the problem and misaligning economic policy efforts.
Key Insights:
- Monetary sovereignty does not hinge on payment system control. The article argues that sovereignty is rooted in a central bank’s legal authority over the unit of account and its risk absorption capacity, rather than in broad public access to a CBDC or the control of payment platforms.
- Conflating money with payments is conceptually misleading. Many calls for a digital euro blur the distinction between money (the unit of account and settlement asset) and payments (the infrastructure to transfer value). Control over payment systems (e.g. to avoid foreign technological dominance) is vital but does not mean a loss of monetary sovereignty.
- Sovereignty is exercised through central bank balance sheets. Historical crises have shown that monetary stability has been preserved more through balance sheet backstops and liquidity provision than through public retail money.
- Regulation, not CBDC, addresses competition from private money. Private digital assets such as stablecoins pose competitive pressures. The article argues these are better addressed through robust regulation, not solely by issuing a CBDC.
- A digital euro could have symbolic value. A CBDC can serve a symbolic role in reaffirming public money’s visibility in a digital economy, particularly within a monetary union, even if it is not strictly necessary for sovereignty.
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