Why is the US Rejecting CBDCs Whilst Europe is Pushing for a Digital Euro?

The development of digital currencies has entered a new chapter after the United States and the European Union took very different policy directions. 

While the European Union is accelerating the development of the digital euro, the United States is strengthening its ban on the development of Central Bank Digital Currency (CBDC) for the next few years.

This difference in approach is not just a technological issue, but concerns economic strategy, monetary sovereignty, and the future of the global payment system. On one side, the US chooses to rely on stablecoins issued by the private sector as a representation of the digital dollar. 

On the other side, Europe wants to ensure the central bank maintains control over digital money infrastructure through CBDC.

So, why do the world's two largest economic regions have such different views? Here's the explanation.

Key Takeaways

• The United States chooses to develop a stablecoin ecosystem instead of issuing a digital dollar based on CBDC.
• The European Union is accelerating the digital euro project to strengthen payment sovereignty and reduce dependence on US-based payment companies.
• This policy difference has the potential to form two different global digital payment system standards in the coming years.

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What is CBDC?

Before discussing policy differences, it is important to first understand what CBDC is.

CBDC or Central Bank Digital Currency is an official digital currency issued directly by a country's central bank. Unlike crypto assets like Bitcoin or stablecoins issued by private companies, CBDC has the status of official national currency.

Simply put, CBDC is the digital version of fiat money that can be used for various daily transactions with full support from the central bank.

Currently, more than a hundred countries are researching or developing CBDC, including China with the Digital Yuan, the European Union with the Digital Euro, and Indonesia through the exploration of the Digital Rupiah.

Read Also: 10 Potential CBDC Coins for the Bull Run, Which One to Buy?

Why Does the US Reject CBDC?

The US policy of rejecting CBDC is actually not because the Federal Reserve has failed to develop the technology. On the contrary, the US central bank does not even have plans to issue a digital dollar for the general public.

However, several American politicians believe that CBDC has the potential to increase government oversight of people's financial activities.

This concern has led to several policies that limit CBDC development, from President Donald Trump's Executive Order to draft laws that prohibit the development of central bank digital currency at least until 2030.

Instead, the United States chooses a private sector-based strategy.

Rather than issuing a digital dollar, the government prefers to support the development of stablecoins pegged to the US dollar such as USDT and USDC.

This approach is considered capable of driving faster innovation without making the government the main operator of the digital payment system.

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Stablecoins Become the New Weapon of the US Dollar

America's strategy makes sense when looking at current market conditions.

Dollar-based stablecoins have become the backbone of the global crypto ecosystem with a market capitalization value of more than US$317 billion.

These assets are used for crypto asset trading, cross-border payments, and decentralized finance (DeFi) applications.

Through stablecoins, the dominance of the US dollar is actually expanding further into the blockchain ecosystem without the need to officially issue a CBDC.

Supporters of this approach argue that the private sector is more innovative, can move faster, and can meet market needs compared to a system fully controlled by the government.

However, this approach also has challenges such as liquidity fragmentation, stablecoin issuer risks, and the need for stricter regulation.

Read Also: Will Donald Trump's CBDC Ban Have a Negative Impact on XRP or RLUSD?

Why Is Europe Pushing the Digital Euro?

Unlike the United States, Europe views CBDC as an important part of the region's economic sovereignty.

The European Central Bank (ECB) sees the current digital payment system as still too dependent on American companies such as Visa and Mastercard.

Through the Digital Euro project, the European Union wants to build a payment infrastructure that is fully under the control of the European region.

The digital euro is designed not to replace cash, but to complement it.

People can still use physical money, while digital transactions are carried out using official currency from the central bank that can be used throughout the eurozone member countries.

The current plan shows that regulations can be completed in 2026, followed by trials in 2027, and full implementation is expected around 2029.

One of the features that is receiving attention is the ability to transact offline, so payments can still be made even when not connected to the internet.

Difference in Philosophy: Free Market vs Public Infrastructure

If simplified, the difference between American and European CBDC actually comes from different philosophies.

The United States believes that innovation will develop faster if left to the private sector.

Stablecoins are considered a sufficient solution to bring the dollar into the digital era.

On the other hand, the European Union sees the payment system as public infrastructure that should remain under central bank supervision.

This approach is considered capable of maintaining financial system stability, expanding financial inclusion, and ensuring the euro currency remains competitive in the digital era.

Read Also: Australia's CBDC Officially Deployed on XRP Ledger and Hedera, Acacia Project Completes Pilot

Impact on the Crypto Industry

This policy difference actually provides new dynamics for the digital asset industry.

In the United States, support for stablecoins has the potential to accelerate the growth of the blockchain ecosystem, DeFi, asset tokenization, and crypto-based payments.

This becomes an opportunity for blockchain companies and crypto asset exchanges because stablecoins are increasingly recognized as an important part of the modern financial system.

Meanwhile, the success of the digital euro could become an example for other countries that want to build central bank-based digital payment systems.

In the long term, the world is likely to have two main digital money models, namely private sector-led stablecoins and central bank-controlled CBDCs.

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What About Indonesia's CBDC?

Indonesia is also one of the countries actively developing Indonesia's CBDC through the Digital Rupiah project.

Bank Indonesia has introduced the Garuda Blueprint as a roadmap for Digital Rupiah development.

The initial focus of development is still on wholesale transactions between financial institutions before being expanded to retail use.

Indonesia's approach can be said to be in the middle. On one hand, the central bank is developing CBDC, but on the other hand it still opens space for blockchain innovation and regulated digital assets.

Read Also: Bank Indonesia's Digital Rupiah: Garuda Project and the New Direction of the National Payment System

Conclusion

The policy differences between the United States and the European Union show that there is not yet one model considered the most ideal in building the future of digital money.

America chooses to utilize the power of stablecoins to expand dollar dominance without having to issue a CBDC. On the contrary, the European Union sees the digital euro as an important foundation for maintaining monetary sovereignty and building a more independent payment system.

For the crypto industry, this condition actually opens up new opportunities. US support for stablecoins can accelerate global blockchain adoption, while CBDC development in various countries shows that digital asset technology is increasingly accepted as part of the future financial system.

In the end, both CBDC and stablecoins are likely to coexist, with functions that complement each other in the global digital financial ecosystem.

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FAQ

What is CBDC?

CBDC (Central Bank Digital Currency) is an official digital currency issued and guaranteed directly by a country's central bank.

Why does the US reject CBDC?

The United States is concerned that CBDC could increase government control over people's transactions. Instead, the US prefers to support the use of stablecoins issued by the private sector.

What is the Digital Euro?

The Digital Euro is the official digital currency being developed by the European Central Bank (ECB) for use as a payment tool in the euro area.

What is the difference between CBDC and stablecoin?

CBDC is issued by the central bank and is the official currency of the country, while stablecoins are issued by private companies with values pegged to fiat currencies such as the US dollar or euro.

How is the development of Indonesia's CBDC?

Bank Indonesia is developing the Digital Rupiah through the Garuda Blueprint. This project is still in the development stage and will be implemented gradually, starting with transactions between financial institutions.