Achieving Monetary Sovereignty in the Digital Era: Recommendations for the EU

The whole world is racing to adapt to new forms of money. China is paving the way in central bank digital currencies (CBDCs) with the rapid rollout of its e-CNY, while the United States is doubling down on privately issued stablecoins as the cornerstone of its digital monetary future.

Monetary sovereignty and influence will be shaped not only by macroeconomic fundamentals or military power, but also by control over the financial and technological infrastructures that underpin global transactions. 

According to Miguel Otero Iglesias, Paola Subacchi, and Gonzalo Rodríguez, authors of the paper,  the EU has a unique opportunity to establish a more secure and stable system—rooted in robust public-private coordination and with the digital euro at its core. Yet, without deeper financial integration, the euro will struggle to achieve true international standing and secure Europe’s position in the new monetary hierarchy.

The digital euro is not enough on its own

The paper addresses the central question of how the EU can leverage its currency to achieve strategic autonomy. It focuses on the potential role of the digital euro, which is currently under discussion at the European Central Bank and the European Parliament, and often presented as a response to external dependencies. 

CBDCs represent an opportunity to assert state authority over the monetary domain—particularly in payment and settlement systems—by reducing reliance on foreign controlled payment and settlement infrastructures. However, CBDCs may be insufficient if not embedded in a broader strategy to address infrastructure dependence, market power asymmetries, and questions of data governance.

The authors argue that the potential of the  digital euro  to secure monetary sovereignty is particularly curtailed at the moment by two structural weaknesses: 

• The persistent underdevelopment of European financial markets. The euro cannot rival the dollar as a global safe asset due to fragmentation across member states and the absence of a deep, liquid market for EU bonds. 
• Europe’s heavy reliance on US payment infrastructures and companies. Systems such as SWIFT and CHIPS, as well as networks dominated by Visa and Mastercard, give Washington disproportionate leverage over European transactions and expose the EU to extraterritorial sanctions. While initiatives such as TARGET2, TIPS, or the European Payments Initiative show promise, they remain limited in reach and scale. 

How can Europe achieve monetary sovereignty?

The digital euro carries tangible benefits—even though debates within the European Central Bank remain open on key questions such as whether it should rely on public or private blockchain infrastructures, how it should coexist with stablecoins, and what payment architecture should support. It could reduce Europe’s dependence on international card schemes and big-tech wallets, guarantee universal access both online and offline (via an app or physical card), and ensure low merchant fees while offering scalable service opportunities for banks. 

However, the digital euro's impact will only be significant  if it is combined with broader reforms. This policy paper outlines the following priorities for promoting monetary sovereignty:

• Advancing the capital markets union, which requires harmonizing tax, insolvency, and financial regulations to build a more integrated and liquid financial system across EU member states.
• Developing independent payment infrastructures by expanding and scaling up TARGET2, TIPS, the European Payments Initiative, EU Wero, and EuroPA to reduce dependence on US-dominated systems.
• Encouraging European firms to settle international transactions in euros, to gradually expand the currency’s global role.
• Expanding euro-denominated swap lines, which would strengthen international financial safety nets and reduce reliance on the Federal Reserve.
• Supporting European providers of financial and digital services, which is essential to reinforce Europe’s strategic autonomy.

Read the entire policy paper and access the full list of recommendations here.