Why CBDC?
Niepelt identifies monetary and national sovereignty as an increasingly prominent motivation for CBDC, citing three channels:
- Reducing rents captured by foreign payment providers. Lane (2025) is quoted arguing Europe’s reliance on foreign providers “exposes Europe to risks of economic pressure and coercion” and limits strategic autonomy.
- Defending the national unit of account against foreign-currency-denominated stablecoins (overwhelmingly USD-pegged).
- Promoting the national currency internationally. The Fed’s own 2022 paper notes a U.S. CBDC might help “preserve the international role of the dollar”
However, Niepelt notes that the seigniorage argument is weak where cash holdings remain stable, and that the sovereignty case is stronger for competition in payments and financial stability than for the more headline-grabbing geopolitical framing. Policymakers, therefore, can design CBDC’s macroeconomic consequences through remuneration, holding limits, and passthrough lending. But they cannot control the macroeconomic consequences of private payment innovations like stablecoins, whose issuers pursue independent objectives.
Central Bank Digital Currency and Monetary Architecture
Author: Dirk Niepelt
From: University of Bern
…because stablecoins are already a problem
In this paper Carlo Altavilla, Miguel Boucinha, Lorenzo Burlon, Ramon Adalid, Roberta Fortes, and Franziska Maruhn combine two empirical strategies using confidential euro-area bank data to study the effect of stablecoin adoption on bank intermediation and the transmission of monetary policy. At the macro level, they estimate a Bayesian VAR (BVAR) using Google Trends data on stablecoin interest as an internal instrument to identify stablecoin shocks. At the micro level, they use a local-projection panel framework with supervisory data on individual bank balance sheets (IBSI) for a large sample of euro-area banks, exploiting cross-sectional variation in retail deposit shares to assess heterogeneous effects. Some of their findings include:
- Monetary transmission gets reshaped. Stablecoin adoption simultaneously strengthens the bank lending channel (wholesale funding reprices faster with policy rates) and weakens the deposit channel (stablecoins erode banks’ market power over depositors). The net effect is greater uncertainty in the pass-through of policy rates to lending volumes, making monetary policy actions less predictable.
- The sovereignty angle. Since 99% of stablecoins are USD-denominated, widespread euro-area adoption would effectively import U.S. monetary conditions into the domestic economy. Banks with greater USD wholesale funding exposure exhibit a significantly weaker loan-supply response to ECB rate changes, but respond to Fed shocks instead. The paper walks through three escalating scenarios: EUR wholesale replacement (manageable), USD wholesale replacement (banks must acquire USD HQLA or hedge FX risk, crowding out domestic lending and sovereign financing), and outright balance sheet contraction.
- The CBDC advantages. The paper explicitly argues that a digital euro would protect retail deposits from migrating to stablecoins, reducing run risk and preserving monetary transmission.
Stablecoins and monetary policy transmission
Authors: Carlo Altavilla, Miguel Boucinha, Lorenzo Burlon, Ramon Adalid, Roberta Fortes, Franziska Maruhn
From: ECB
…but is CBDC really the answer?
In this commentary, Lucrezia Reichlin provides a counterpoint to the recommendation made above by Altavilla et al. as she argues that:
- CBDCs aren’t necessary for sovereignty. Monetary stability has never depended on retail access to public money. In every recent crisis, sovereignty was preserved through wholesale tools such as reserve issuance, collateral frameworks, emergency facilities, not retail instruments.
- Reichlin accepts that foreign-currency stablecoins pose real sovereignty risks (agreeing with Altavilla et al.’s evidence). But a capped, non-remunerated, lightly used digital euro won’t displace stablecoins embedded in global platforms. The credible response is regulating stablecoin reserves directly.
- Money is “different” than payments. Europe can lose control over payment rails without losing monetary sovereignty. Dependence on foreign payment providers is a competition-policy problem, not a monetary one needing interoperability mandates and European payment infrastructure, not a monetary instrument overloaded with payments objectives.
Central bank digital currency and monetary sovereignty
By: Lucrezia Reichlin – London Business School
