The Battle for Global Payments Supremacy: Europe's Digital Euro vs. US Stablecoins

Overview

The global payments landscape is undergoing a seismic shift, driven by geopolitical tensions and rapid technological innovation. At the heart of this transformation is a strategic contest: the United States is doubling down on dollar-backed stablecoins to entrench its dominance, while Europe races to launch a digital euro in a bid to reclaim monetary sovereignty and modernise its payment infrastructure.

Strategic Context: The Case for a Digital Euro

Philip Lane, Chief Economist of the European Central Bank (ECB), recently called it “imperative” for the ECB to issue a digital euro. His urgency is shared by Paschal Donohoe, President of the Eurogroup, who has flagged a “heightened level of urgency” in response to developments beyond the continent — notably the proliferation of USD-denominated stablecoins, many privately issued and politically backed.

The motivation is not just defensive. Stablecoins, particularly those pegged to the US dollar, represent a potential shift in global monetary influence. These instruments offer 24/7, low-cost, programmable payments — making them particularly attractive for global trade and cross-border transactions. The risk? "Digital dollarisation," where local economies and businesses shift to transacting and holding value in digital dollars, undermining the euro’s role as a store of value and unit of account.

The ECB has noted that around two-thirds of card payments in the Eurozone are processed by non-European firms — a stunning admission of dependence on US-dominated infrastructure such as Visa and Mastercard. Thirteen of the 20 Eurozone countries lack national card-payment systems entirely.

The U.S. Offensive: Stablecoins as Soft Power

Trump-era executive orders have aimed to bolster the global reach of dollar stablecoins, with backing from a cadre of influential players in tech and finance, including Elon Musk and Howard Lutnick. Their shared vision is clear: maintain US dominance not only through military and trade power, but through control of the plumbing of global finance.

The long-standing weaponisation of the dollar-based system — seen in the US' ability to cut adversaries off from SWIFT — has pushed alternative economic blocs like the BRICS to explore competing payment systems. Now, with blockchain-based rails and smart contracts in the mix, that competition has moved into overdrive.

MY ANALYSIS: Europe Cannot Afford to Lose This Race

This battle for control of the global payments system is, in my view, far more consequential than it appears. The focus is too often placed on the retail implications of a digital euro — capped wallet sizes, consumer privacy, etc. — but the strategic importance lies in wholesale and cross-border applications.

Without a viable alternative, the euro risks becoming a second-tier currency in the digital era. The window to act is narrowing. The ECB should not merely replicate the functionality of stablecoins; it must leapfrog them — offering programmability, cross-currency compatibility, and seamless B2B use cases. Think beyond milk at the checkout; think supply chain settlement, energy trade, and capital markets infrastructure.

If done right, the digital euro could:

• Reduce frictional costs of intra-European trade and investment (effectively removing a ‘transaction tax’ imposed by foreign providers).

• Defend monetary sovereignty in a digitising world.

• Enable European fintech innovation, leveraging safe, central bank-backed rails to build new layers of financial products.

There is a strong macro case for investor interest too. EU banks and fintechs positioned to integrate digital euro infrastructure could see operational efficiency gains and margin expansion. Conversely, legacy payment players with heavy dependence on cross-border fees may face disintermediation risk.

Conclusion

The digitisation of money is not just a tech story — it's a geoeconomic one. In this arms race of payment systems, the spoils go to those who control the rails. For Europe, this is a rare second chance: an opportunity to assert economic independence, lead in financial innovation, and ensure the euro remains globally relevant in the decades ahead.

The digital euro isn’t just necessary — it’s overdue.