What the U.S. ban on central bank digital currencies means for Europe
The U.S. has banned a digital dollar. Meanwhile, Europe is racing ahead with its digital euro.
In a nutshell
- Washington has banned digital currency, citing privacy concerns
- The ECB is advancing the digital euro despite risks to banks and stability
- China’s digital yuan is pressuring Europe to lead in CBDC standards
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On July 17, the United States House of Representatives passed a bill prohibiting the Federal Reserve from creating a Central Bank Digital Currency (CBDC). Lawmakers consider the technology a threat to financial privacy and freedom, calling it incompatible with America’s fundamental democratic principles.
The bill also codifies U.S. President Donald Trump’s executive order from January, which forbids federal agencies from pursuing the development of any form of government-controlled digital money. Monetary innovation should remain in the hands of the people, not the administrative state, argued Congressman Tom Emmer, the lead sponsor of the so-called Anti-CBDC Surveillance State Act. The new legislation states: “Unelected bureaucrats can never unilaterally issue a CBDC or weaponize a digital dollar to erode our freedoms.”
The bill would effectively halt what American financial technology strategist and GIS expert Dante Disparte has described as a “tax-payer borne science experiment with money.” The decisive U.S. stance runs sharply counter to a global trend: Over 90 percent of the world’s central banks are actively exploring digital versions of fiat currency, including the European Central Bank (ECB).
Following four years of study and preparation, the ECB, under Christine Lagarde’s leadership, is expected to decide by year’s end whether to launch a “digital euro.” Pilot programs could start as early as 2026. If approved by the European Parliament, a full-fledged retail CBDC could be in circulation in the eurozone by 2028.
The U.S. ban raises an important question: If Americans reject CBDCs as a gateway to mass surveillance and state control, why should Europeans embrace them – and what exactly are they signing up for?
The digital euro may create more risks than benefits
The ECB’s official messaging highlights the digital euro’s advantages but largely glosses over its possible downsides. The digital euro, we are told, is merely an electronic form of cash, meant to complement rather than replace physical euro banknotes and coins.
Convenient, risk-free and widely accessible, it would “make people’s lives easier.” Users would just have to set up a digital wallet, fund it via a linked bank account or cash deposit and use it for everyday payments.
The CBDC reform is framed as key to modernizing financial infrastructure amid a booming digital economy and a steady decline of physical cash. However, if successful, it could seriously disrupt the traditional banking and payments system, and ultimately the entire monetary system. The ECB might imperil the very intermediaries it relies on to transmit its monetary policy.
Imagine millions of Europeans shifting funds from commercial banks into ECB-issued wallets. This would amount to a massive digital bank run, with potentially disastrous consequences for financial stability, notably in times of crisis.
Former ECB Supervisory Board member Andreas Dombret warned that even in normal times, people might come to prefer holding CBDCs over bank deposits, eventually triggering a credit crunch and, at the same time, a major expansion of the central bank’s balance sheet. Sooner or later, the ECB may face pressure to issue loans directly to households and businesses – a major shift that would blur the line between central banking and retail banking in an unprecedented way, with far-reaching implications.
To minimize risks, the ECB proposes a cap on individual digital euro holdings, reportedly around 3,000 euros per person. The digital euro would carry no interest and serve solely as a means of payment, not a store of value. If this is how it works, what incentives would users have to adopt the digital euro over existing private-sector solutions such as payment cards or mobile apps?
And why should digital cash be better than physical cash? After all, cash requires no power supply, internet connection or digital devices. It is immune to technological obsolescence, power outages, cyberattacks and data breaches. Nor does it depend on a complex, shifting, legal and technological infrastructure. So what is the point? As one observer put it, the digital euro may simply be “a solution in search of a problem.”
The privacy dilemma
A common argument in favor of introducing a digital euro is that it could provide accessible payment services to the European Union’s estimated 13 million unbanked adults. It could, however, also lead to new forms of social exclusion. Those lacking reliable internet, digital skills or smartphones might find themselves further marginalized in an increasingly cashless future. The ECB is aware of these risks and has said it is committed to addressing them effectively, aiming to ensure that a digital euro enhances financial inclusion rather than deepening existing divides.
Privacy remains a key concern. According to former ECB Executive Board member and chair of the Eurosystem High-Level Task Force on a Digital Euro, Fabio Panetta, “protecting privacy is a vital feature of the digital euro.” The central bank promises the “highest standards of privacy” for this “cash-like” instrument – though not the full anonymity of physical cash. Instead, it proposes a tiered approach to privacy: anonymity, or rather, “pseudonymity” for small (essentially offline) transactions, and traceability for larger ones.
For now, what qualifies as “small” or “large” remains undefined. Is it 100 euros? Less? More? Eventually, it turns out that even for the smallest and most trivial transactions, like buying a cup of coffee, anonymity may not be guaranteed. As Mr. Dombret pointed out, legislative acts such as the EU’s Markets in Crypto-Assets Regulation (MiCA) and an increasing number of anti-money laundering laws require all digital currency transactions to be traceable, regardless of the amount involved or the issuer, whether private entities or central banks.
The ECB claims the digital euro would follow EU rules aimed at “balancing privacy with security.” How exactly that tradeoff will be managed is unclear. The digital euro drafters simply assert that Europe’s legal framework offers the “strongest privacy protections in the world.” They also pledge that the ECB will not use consumers’ personal data for commercial purposes. Does that mean no data will be collected? Probably not. The real question is: What happens to the data in the end? Who will have access to it and, ultimately, who will control it?
Defending monetary sovereignty
Policymakers insist that personal data will be safer with the ECB than with global tech companies, to which millions have already handed over their privacy with little hesitation.
In fact, the idea of a digital euro first emerged in 2019 as a defensive response to Facebook’s (now Meta) plan to create its own virtual currency: Libra, later rebranded Diem. The ECB feared the tech giant could exploit its vast global user base to build a private payment network outside regulatory oversight. Although Meta’s project ultimately failed, the underlying threat that such powerful market initiatives could pose to monetary sovereignty still remains.
The growing dominance of U.S.-based payment platforms like PayPal or Apple Pay, along with the rapid expansion of private digital currencies (notably Bitcoin’s stateless rise) and dollar-backed stablecoins such as USDT (Tether) or USDC (Circle), continues to be a major concern for the ECB. And the worry goes far beyond data privacy. As more Europeans adopt these systems, the ECB fears losing control over the broader payment infrastructure and, eventually, the money supply – one of a central bank’s most essential functions.
In many ways, the ascent of fiat-backed stablecoins and the near-launch of Libra/Diem served as a wake-up call. Central banks realized that in a digital economy, control over currency can no longer be taken for granted. A digital euro would provide a public (that is, sovereign) alternative, ensuring that Europe’s monetary system stays anchored by the ECB, rather than being steered by private, largely foreign, actors that are operating beyond its reach.
Fine-tuning monetary policy
Another oft-cited argument in favor of CBDCs is their potential to enhance the transmission of monetary policy. Unlike conventional stimulus tools, they could enable authorities to deliver financial support with pinpoint precision to those who need it most. This capability could significantly accelerate and strengthen fiscal and monetary responses during crises, be it a pandemic, natural disaster or economic shock.
A state-owned digital currency with automated rules or built-in payment conditions (so-called “programmable money”) could also facilitate the delivery of recurring government programs, such as social security or unemployment benefits. In theory, however, the same technology might allow authorities to deduct funds from the digital wallets of wealthier individuals and redistribute them – a controversial prospect that central banks, unsurprisingly, tend to sidestep in their public communications.
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When asked whether the digital euro will incorporate features allowing public oversight of its use, such as of how, where or with whom it is spent, the ECB’s response is unequivocal: “No, never.” Officially, such controls are categorically ruled out.
Yet the underlying technology could, in principle, enable functionalities of programmable money that verge on the Orwellian: automatic expiration dates for money, spending limits by category, expense tracking or, more generally, real-time monitoring of financial behavior. While such possibilities are downplayed in central bank communications, they could well be embedded in the digital euro’s design. Whether they would ever be activated is another matter. For now, we are left to take the ECB at its word.
Scenarios
Unlikely: The ECB postpones or renounces its plan to issue a digital euro
In light of the recent developments in the U.S., where lawmakers have blocked the introduction of a digital dollar by invoking the “principle that money should be free from political manipulation and government surveillance,” one might expect European policymakers to pause for reflection. But that is clearly not the case.
In a press release dated July 16, 2025 – just one day before the Anti-CBDC Surveillance State Act passed the U.S. House of Representatives – the ECB reaffirmed its commitment to moving steadily toward implementation.
Marking the release of the institution’s third official report on the digital euro preparation phase, Executive Board member and chair of the High-Level Task Force on a Digital Euro, Piero Cipollone, stated: “We are pleased to see that our efforts remain on track as we keep working to deliver on the request of EU leaders to accelerate progress on a digital euro.” He added: “In light of today’s geopolitical and economic challenges, we welcome an ambitious pace for the legislative work.”
In short, there is no sign of hesitation, let alone retreat. All indications point toward a continued and determined push to bring the digital euro to life.
Likely: The ECB doubles down to lead the Western CBDC race
In a geopolitical environment where leadership in digital finance is increasingly tied to questions of security and sovereignty, the ECB’s objective appears clear: fill the void left by Washington and assert itself as the standard-setter among Western central banks.
As Chris Giancarlo, former chairman of the U.S. Commodity Futures Trading Commission and founder of the Digital Dollar Project (a private-sector initiative dedicated to research and experimentation on the digital modernization of the U.S. dollar), rightly noted, the race to set global standards for CBDC interoperability has become a critical challenge for monetary authorities. And if no major Western central bank takes the lead, others – notably the People’s Bank of China – are more than ready to step in.
Since the rollout of the digital yuan (e-CNY) during the 2022 Winter Olympics, China has made no secret of its ambitions to internationalize its already well-advanced CBDC project. Beyond promoting cross-border use, Beijing is actively exporting the digital yuan’s underlying infrastructure – establishing the rules, protocols and technical architecture that could shape the future of global digital finance.
According to Mr. Giancarlo, this represents not only an economic challenge but also a normative one: Should China become the dominant supplier of CBDC infrastructure, emerging economies – or even advanced ones – may find it more practical to adopt Chinese-designed systems rather than build their own. In doing so, they could (inadvertently or not) import elements of China’s deeply authoritarian governance model into their digital financial systems.
For the ECB, this only reinforces the sense of urgency. The goal is not just to preserve monetary sovereignty within Europe, but to ensure that the global evolution of digital currency remains anchored in liberal democratic values.
But in seeking to match the pace and scale of China’s progress, the ECB risks opening the door to similar technologies of surveillance and control, raising the uncomfortable question of whether defending democratic principles abroad might come at the cost of eroding them at home.
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