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Could central banks become obsolete? This is one of the questions being asked across Europe as digital payments take over from cash. Could a private platform issue a stablecoin that achieves mass adoption in everyday commerce? It may sound like science fiction but, as economic pressures mount across the countries of Europe, especially with high sovereign debt levels in leading EU countries and talk of systemic risks, the legitimacy of state currencies is weakening. And as we have often seen in times of crises, trust could shift rapidly from public money to private alternatives.

EU discussions on the issuance of a digital euro were shaken last month by the US’ passage of the GENIUS Act. This new law propels America into the age of decentralized finance, as it creates a regulatory framework for the $288 billion stablecoin market that is dominated by dollar-backed tokens like Tether and Circle’s USDC. The combination of high European debt, slowing growth and the rise of private digital money has forced European policymakers to speed up their plans for a digital euro.

Indeed, there are now fears that dollar-pegged stablecoins could take a bigger share of cross-border payments, taking deposits away from Europe. The European Central Bank has presented the digital euro as a public alternative to private payment networks, but there is now clear US momentum that has changed everything. It is also worth noting that China has already launched large-scale pilots for the digital yuan and the UK is pushing ahead with its digital pound. If all the alternatives rely on a deposit of the equivalent fiat currency, mass adoption within a single system could allow for it to be unlinked, just as the US dollar stopped being pegged to gold in 1971.

The reality is that the EU now sees a real threat from the combination of tech wallets and cryptocurrencies. It is not so much the traditional card processing firms, such as Visa or Mastercard, that worry the EU, as such processors work within the financial network. But tech wallets such as Apple Pay, Google Pay, PayPal and even China’s Alipay (as orders directly from suppliers increase) present a risk.

The European Central Bank has presented the digital euro as a public alternative to private payment networks

Khaled Abou Zahr

Indeed, if these already well-adopted platforms or a newcomer were to close off their network to their own circuit, this would mean that, as there is already mass adoption, the European Central Bank would lose its direct role in everyday payments, weakening monetary sovereignty and leaving Europeans dependent on private, often non-European, systems to access and use money. In short, these platforms, empowered by a decentralized system, would control the entire money supply chain.

The US’ GENIUS Act has provided a regulatory framework that is still lacking anywhere else in the world. European policymakers’ response has been to debate whether the digital euro should be launched on public blockchains such as Ethereum or Solana or on a closed, centrally run system — but this approach misses the reality of the transformation.

Without going into too much detail, in a decentralized system, everything is governed by smart contracts between the users and the network itself, with rules enforced automatically by code rather than by a central authority. It is already clear that the EU would enforce rules decided by a limited number of actors to maintain control. In short, it would apply a central decision-making process to a decentralized system. This is self-defeating and if a well-adopted alternative existed, users would naturally flock to it.

This is not the only opposition or risk for the digital euro; there are also control and privacy concerns. Critics highlight that, unlike cash, a digital euro would allow authorities to track and analyze every single transaction and hence strip citizens of their personal freedom. This fear is increased by the fact that the central bank would have unprecedented power. The digital euro would give authorities the capacity to restrict spending, set up direct withdrawals or force closures. These fears seem highly exaggerated, especially as cash usage plummets, but in a highly polarized political environment this shows the potential for misuse against political opponents or their supporters.

These platforms, empowered by a decentralized system, would control the entire money supply chain

Khaled Abou Zahr

Looking at how the EU functions and its highly regulated format, if it feels it is losing control over its monetary system, it will resort to strict measures to protect its sovereignty. This will probably include banning private payment systems or restricting citizens’ access to them, forcing all transactions onto its own platform, namely the digital euro. Such a move would aim to preserve the central bank’s oversight of money flows and maintain financial stability, but if the restrictions are seen as too heavy-handed, this could also lead to the creation of illegal parallel systems.

This also sounds like fiction, yet it needs to be put in the perspective of the erosion of trust in state institutions. This is a common sentiment within Europe. It is not a far-right sentiment but is shared and expressed differently across the political spectrum. We cannot see this trend being reversed, especially with higher global geopolitical risks and a system that cannot rethink itself or risk collapse.

This is why the EU cannot afford to lose control. First, it would lose the capacity to control the supply and distribution and hence would lose its toolbox to impact inflation, interest rates, taxation and liquidity in the economy. Second, and even more importantly, it would be a significant loss of sovereignty and authority, which would put the central authority at risk.

In the 1970s, as Europe started discussing a common currency, French President Valery Giscard d’Estaing proposed the name “ECU,” which stood for “European Currency Unit.” In reality, he was referencing the historic French coin, the ecu, and it was rejected as the euro’s official name for this reason. This shows how a coin is more than just payment; it is a symbol of the state and reflects sovereignty and authority. Hence, European policymakers could never allow the digital euro to be replaced. Yet, the first step is not launching the currency itself but rebuilding trust in the EU’s institutions — and this is no easy feat.

• Khaled Abou Zahr is the founder of SpaceQuest Ventures, a space-focused investment platform. He is CEO of EurabiaMedia and editor of Al-Watan Al-Arabi.