Europe needs a digital currency to safeguard against threats from new forms of money like stablecoins, and to reduce reliance on US payments firms amid heightened political tensions, warns European Central Bank chief economist Philip Lane.
After years of preparatory work, European lawmakers are set to make a final decision on whether to go ahead with a digital euro roll out by the end of the year.
The decision nears as the continent face up to an increasingly hostile United States under Donald Trump, who has said the EU was "formed to screw" America.
This comes amid a broader realignment, Lane told a conference in Cork, arguing that "we are witnessing a global shift towards a more multipolar monetary system, with payments systems and currencies increasingly wielded as instruments of geopolitical influence and competing jurisdictions seek to assert their independence from foreign monetary powers".
Lane notes that Visa and Mastercard process 65% of euro area card payments, while US tech giants such as Apple, Google and PayPal are also gaining popularity.
"This dependence exposes Europe to risks of economic pressure and coercion and has implications for our strategic autonomy, limiting our ability to control critical aspects of our financial infrastructure," warns Lane.
Meanwhile, a new threat is on the horizon in the form of stablecoins - 99% of the stablecoin market is linked to the US dollar.
Lane says that stablecoins could see central bank money play a "much-diminished" role in the payment system. And if these stablecoins are effectively backed by assets denominated in a foreign currency, Europe could face a situation where digital dolleraisation would "undermine monetary sovereignty by compromising the ability to control the unit of account within its jurisdiction".
Lane says that a "digital euro is a promising solution to counter these risks and ensure the euro area retains control over its financial future".
He concludes: "The digital euro is not just about making sure our monetary system adapts to the digital age. It is about ensuring that Europe controls its monetary and financial destiny, against a backdrop of increasing geopolitical fragmentation."