Many European lawmakers have advocated for the launch of the digital euro as a solution to the continued dominance of USD-backed stablecoins, but a recent outage at the European Central Bank (ECB) has raised concerns about the viability of the central bank digital currency (CBDC).
Plans for the digital euro have been years in the making, and ECB officials are hopeful for a fall launch of the long-awaited project. However, the recent seven-hour outage of banking services at the ECB left trillions of euros in jeopardy, calling the future of the CBDC into question.
Members from four of the eight groups in the European Parliament have expressed concerns about the ECB’s ability to manage a digital euro. According to Markus Ferber of the European People’s Party, the largest group in the current parliament, these worries were exacerbated because the ECB “cannot even keep their day-to-day operations running smoothly.”
Differentiating the Systems
The recent outage was caused by a hardware defect in the ECB’s Target 2 (T2) system, which settles trillions in payments from the EU’s businesses and consumers, as well as investment trades.
Although the system is now back online, the substantial volume of payments it handles led to delays in paychecks, government assistance payments, and securities trades.
However, an ECB official told Reuters that the infrastructure for its planned digital euro is modeled after its TARGET Instant Payment Settlement (TIPS) system, which handles real-time payments in the region. A spokesperson noted that the TIPS system operates 24/7 and handles more transactions, but with lower value, compared to the T2 system. The TIPS system has been reliable, only experiencing minor delays during the T2 outage.
Stablecoins Gaining Ground
It’s unclear whether the differentiation of systems will be sufficient to address the newfound doubts of lawmakers who still need to approve the digital euro.
However, it’s evident that dollar-based stablecoins continue to gain ground. The security and speed of the blockchain-based assets have made stablecoins ideal candidates for cross-border transactions, with a growing range of use cases.
Stablecoins are also expanding their global reach. For example, Circle’s USDC became the first stablecoin approved for use in Japan, a country that had previously banned foreign currency-backed digital assets. As stablecoins proliferate, it will become increasingly harder for government-backed assets like the digital euro to gain traction—especially if operational concerns at the ECB persist.
