Commercial banks and central banks are currently clashing with unprecedented force. The bone of contention is the handling of stablecoins vis-à-vis digital central bank money, which is intended both as a retail Central Bank Digital Currency CBDC (digital euro) and as a wholesale CBDC for high-volume interbank payments, especially in securities transactions.

One problem area is that just as the US is advancing with dollar stablecoins and market infrastructure legislation, the ECB and European institutions are under pressure to counter with something that drives the EU capital market. But there is a lot of friction in the system, as EU Parliamentarians and Finance Ministers have far bigger concerns given a latent sovereign debt crisis, meaning that an agreement on the digital euro, despite all the lip service, is low on the agenda.

It is even worse. At their last meeting, the EU Finance Ministers decided absolutely nothing on the digital euro, and only agreed that they would have the final say when the holding limit for this new payment instrument is set – as this would influence deposits at banks.

This is a key point for financial stability, so that banks can secure their lending base. A conflict of goals arises, however, because a retail CBDC needs volume to be market relevant.

While a classic political compromise would normally be possible, a disaster scenario for the ECB is emerging in the EU Parliament. The Parliament’s rapporteur gives the impression that he does not want a digital euro at all. The unwillingness in Parliament to approve a digital euro – which could face acceptance issues and be misused as a surveillance tool – is palpable.

The next steps in Brussels are about as slow as dried lava: Fernando Navarrete Rojas will deliver his report at the end of October. Other members then have time to add comments in the form of further detailed proposals, which will lead to a parliamentary discussion, ideally culminating in a common position – though this is not guaranteed. The forecasts are that Parliament will find its common position no earlier than the end of the first quarter of 2026. Only then can the trilogue begin, which has its own pitfalls.

Given this bureaucratic drama, the question must be asked: how can an economic and monetary area with such painfully long processes remain competitive? This question is likely on the minds of the banks that have joined forces to launch a euro stablecoin. Such a stablecoin could be used for everyday payments, but especially for securities settlement on DLT infrastructure to ensure frictionless processing.

However, this could displace the central bank money currently used for large-value transactions. This is precisely what Bundesbank chief Joachim Nagel expressed concern about at Sibos. The anchor function of central bank money must not be weakened, and central banks will not tolerate developments that undermine their ability „to effectively implement our monetary policy,“ Nagel emphasised.

He is of course correct. At the same time, banks cannot be expected to wait indefinitely until a market-ready wholesale CBDC with central bank infrastructure is available. You can already see from afar how US banks are once again moving ahead. That is why institutions like DekaBank, ING, and Unicredit are doing exactly the right thing by building a stablecoin engine that generates additional demand for European government bonds, which are needed to back a euro stablecoin. This strengthens capital allocation toward Europe.

Banks, and the Deutsche Börse, which recently partnered with the stablecoin firm Circle, will also gladly use a wholesale CBDC on their platforms. Banks understand the value of financial stability. Central banks and legislators are called upon to find a balance that does not hinder private sector innovation while preserving the relevance of central bank money. One thing is clear: keeping stablecoins small does not help the euro. On the contrary, Europe needs the money flows created by stablecoins to strengthen its position in competition with the dollar.