ECB pitches digital euro as response to Trump’s crypto push

FRANKFURT (Reuters) – Eurozone banks need a digital euro to respond to U.S. President Donald Trump’s promotion of stablecoins, a type of cryptocurrency usually pegged to the U.S. dollar, European Central Bank board member Piero Cipollone said on Friday.

Trump said he would “encourage the development and growth of legal and legal dollar-backed stable metals around the world” as part of a broader crypto strategy he outlined in an executive order issued Thursday.

Cipollone said this would help drive more customers away from banks and strengthen the ECB’s case for launching its own digital currency in response.

“I think the key word here (in Trump’s executive order) is worldwide,” Cipollone said at a conference in Frankfurt. .. That’s why we need a digital euro.”

Stablecoins work like money market funds in that they offer short-term interest rate exposure in the official currency, almost always the US dollar.

Conversely, the digital euro would essentially be an online wallet guaranteed by the ECB but operated by companies such as banks.

It will allow people, even those without bank accounts, to make payments. Holdings will likely be limited to a few thousand euros and will not be remunerated.

Banks have expressed fears that the digital euro will empty their wallets as customers transfer some of their cash to an ECB-guaranteed wallet.

The eurozone’s central bank is currently testing how the digital euro will work in practice, but it will make a final decision only after European lawmakers approve legislation on the matter.

Trump’s executive order also prohibits the Federal Reserve from issuing its own central bank digital currency (CBDC).

Nigeria, Jamaica and the Bahamas have already launched digital currencies, and another 44 countries, including Russia, China, Australia and Brazil, are running pilots, according to the Atlantic Council think tank.

(Reporting by Francesco Canepa Editing by Mark Heinrich)