Digital Euro Within the Categories of International Political Economy

Over 100 countries around the world are discussing and implementing projects to introduce central bank digital currencies (CBDCs). In November 2023, the European Central Bank launched a two-year preparation phase for the potential issuance of a digital euro. Having a vast experience in constructing interbank trans-border settlement systems, now it has to design and implement an infrastructure for retail trans-border payments. European officials regard the digital euro as an important geopolitical instrument since it is expected to play a crucial role in strengthening the strategic autonomy of the European Union. This article aims to detect and evaluate preconditions that are essential for the implementation of the project and are likely to shape its overall outcome. Analysis is based on the principles of International Political Economy (IPE). It proceeds from the assumption that the global economic system has a hierarchical structure which sets limits for any specific actor's decisions and hamper resorting to universal solutions. The results suggest that in the move to a digital euro the EU (and the ECB in particular) face greater challenges than China, Russia and other major countries that plan to issue CBDCs. First, after decades of functioning of the Single European Market and the EMU, a deep fragmentation of retail payment systems across the euro area do persist. Second, euro area countries demonstrate sharp differences in the development of transborder digital commerce, e.g., in international trade in digitally-deliverable services. Therefore, their interests within negotiations on the future digital euro may not coincide that is likely to encumber the progress towards the European CBDC, as it happened with the European Payments Initiative launched in 2020. The geopolitical profile of a move to a digital euro includes two unfavorable for the EU components: the project is being implemented under strong external pressure and it aims to preserve rather than enrich accomplishments of European integration. When in 1999 the EU introduced the single currency, it set proactive goals – to make the euro an important international currency and to promote stabilization of the international monetary system. Now, 25 years later, the EU employs reactive goal setting – it strives to prevent dollarization of domestic payments that is looming over the euro area due to the infrastructural dominance of foreign payment services. However, without the single currency, the EU would have been left without any tools to oppose this type of external pressure.

European Union, European Central Bank, central bank digital currencies (CBDC), digital euro, regional integration, international financial system