European Central Bank (ECB) head Christine Lagarde has expressed her ambitions for a digital global euro. So much for earlier rumours of her jumping ship to lead the World Economic Forum (WEF).
On June 23 Lagarde renewed calls for a central bank digital currency (CBDC) version of the euro. Given the recent progress in the US of the Genius Act, which if passed would see stablecoin assets pegged to the dollar, that should come as little surprise.
“Support for the euro has reached an all-time high,” Lagarde told the European Parliament, citing a recent EU report that found more than half of Europeans trust the euro. “Now is the time to make the euro area economy more productive, competitive and resilient.”
Lagarde: Euro Must Go Digital
According to Lagarde, that entails making a CBDC version of the euro a reality. But it’s something the EU has yet to reach consenus on.
She added: “A legislative framework to pave the way for the potential introduction of a digital euro should be put in place rapidly. By making the right policy choices, we can leverage the current momentum to boost the economic perspectives for Europe and its citizens.”
The European Commission’s Market in Crypto-Assets Regulation (MiCA) framework has been praised by observers like Chatham House. MiCA “comprehensively sets rules for digital asset issuers and service providers in a way that should facilitate innovation without threatening financial stability,” said Chatham in a bulletin published on June 11.
This even led it to assert that “Europe could win the battle for the future of digital money” in its headline. If Chatham is right, Lagarde’s ambitions for a digital global euro might not be so far-fetched.
European Parliament Drags Heels
Despite that, the European Parliament has been recalcitrant on the subject of a CBDC. It has yet to approve legislation introduced by the European Commission in June 2023.
Since then the ECB has announced a new framework, in May, bringing in 70 European “market participants” including fintecs and payment service providers to collaborate on the digital euro project. Findings from this trial phase are due to be published later this year.
Lagarde Hopes for Global Euro
If Lagarde has been enthusiastic over a CBDC, she has been downright bullish about the euro’s future prospects overall. She recently suggested she liked the EU currency’s chances of eventually superseding the US dollar as monetary powerhouse.
Dismissed as a “fantasy” by anti-mainstream disruptor UnHerd, Lagarde’s ambitious pitch for a “global euro” is based on what she sees as “zero-sum thinking and bilateral power plays” in the geopolitical landscape.
She added: “There is even uncertainty about the cornerstone of the system: the dominant role of the US dollar.” This, she added, left the door open “for the euro to play a greater international role.”
Dream On Lagarde, say Critics
Describing this as “wishful thinking,” UnHerd pointed out in June that the euro only takes up about a fifth of global foreign exchange reserve currencies. The US dollar may be in decline, it stressed, but at the time of writing still makes up about 60% of foreign reserves – triple the euro’s share.
That hasn’t deterred Lagarde, who cites as a reason for her optimism the EU share of trade with other countries, which accounts for two-fifths of the global total. That’s 40% of the world’s trade invoiced in euros.
CBDC Collaboration Between Member States
The euro’s growing status as a trading currency powerhouse is evidenced elsewhere. Euro-denominated Banque de France and SAR central bank the Hong Kong Monetary Authority (HKMA) announced on June 27 a joint venture into a “wholesale CBDC” that could be used by both parties.
Under this partnership the two central banks will “delve into the study of interoperability between their wholesale CBDC infrastructure.”
HKMA added: “The cross-border experiment aims to explore how to optimise settlement efficiency of cross-border transactions, and facilitate interoperability between financial market infrastructures in different jurisdictions.”
The Hong Kong central bank says it hopes the closer collaboration will “lay the foundations for further efforts on tokenisation and new technologies.”
Lagarde’s China Outlook Rosy
The CBDC partnership between eurozone member France and Chinese SAR Hong Kong comes not long after Lagarde reaffirmed the European bloc’s commitment to trade ties with the Asian superpower amid fears about growing US unilateralism.
Speaking with CGTN’s BizTalk programme on June 23, Lagarde said the global economy was “in a good position to withstand shocks” after surviving the energy and inflation crises, but was now in a time of “great uncertainty” caused by the “tariff threat” from the US.
“That has dampened global growth expectations […] most countries are affected,” she said. “It’s not a win-win situation, it’s a lose-lose situation.”
By contrast, Lagarde praised Europe’s half-century relationship with China, adding: “I think we all have an interest in pursuing this multilateral approach to issues that are global by nature.”
Economic Allies: China and Europe
Lagarde said the two powers shared a close affinity in trade terms despite their political differences. China is the EU’s third largest export market, while the two together account for nearly a third of global trade.
It’s a relationship the ECB head seems keen to maintain, regardless of what the US feels about China.
“In a context of global relationship and open trade between countries, the progress that China has made, the progress that Europe has made, the benefits that both regions have had as a result of this international trade expansion […] was spectacular over the past few decades.”
She added: “I think we have to persevere and continue that global cooperation. It doesn’t mean that we agree on everything – it doesn’t mean that we open all doors without restrictions. But we have to cooperate and try to make the best of that cooperation in the interest of all parties.”
Be Careful What You Wish For
It’s not hard to see why Lagarde wants to see a digital global euro that can one day rule the roost. Thanks to dollar dominance, the US benefits from considerable perks such as being able to spend its way out of a recession due to lower borrowing costs.
However, this has come at the price of running a trade deficit – something US president Donald Trump seems anxious to reverse with his controversial tariff policies.
“A dominant reserve currency must meet global demand, which typically requires running large current account deficits in order to satisfy the world’s demand for the currency,” said UnHerd. “The US has long done this by design, though Trump is now trying to reverse course. Brussels, on the other hand, has built its economic model around trade surpluses. There’s no sign EU leaders are prepared to flip that model on its head.”
It’s a fair point. Already the EU runs a trade deficit with China – this rose to an estimated €305 billion in 2024, up from €297 billion the previous year. A more dominant euro might exacerbate that by making Chinese imports even cheaper for eurozone countries.
Lagarde Keeps Eye on Prize, WEF Waiting
Whether she is right to want a digital global euro – and right about the EU being able to get it – remains to be seen. As far as going digital goes, Lagarde must first convince the laggards. Until the European Parliament is persuaded, a CBDC euro will likely be stalled.
Then again, if Lagarde can win over the naysayers in parliament and make her digital euro dream a reality, it could be a powerful alternative to investors wary of both the US and China.
One thing seems settled for now. WEF interim chairman Peter Brabeck-Letmathe must keep looking for a permanent replacement.
Author: Damien Black
The editorial team at #DisruptionBanking has taken all precautions to ensure that no persons or organizations have been adversely affected or offered any sort of financial advice in this article. This article is most definitely not financial advice.
#CBDC #euro #ECB #ChristineLagarde #EU #GeniusAct #China
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