The Digital Euro: strengthening monetary power in the Digital Age

The study of digital money is central to IPE as it challenges and potentially reshapes established relationships among states, central banks, and financial institutions through financial technologies (Westermeier 2024). The development of digital currencies enters the dynamic relationship between states and societal actors in shaping money space. The impact of digital currencies on the supply and demand side of money is multifaced, increasing the competition from nonstate sources and shifting power from states to private institutions (Mosley 2005; Copelovitch 2010; Underhill and Zhang 2008). Financial globalisation and the increased interconnectedness of economies have undermined the ability of states to control their national monetary system (Strange 1996). In addition, with the modernisation of the monetary system, public money forms and liabilities issued from central banks today are only a small part of the global money supply being replaced by private liabilities (Murau and van t’Klooster 2022). Therefore, the digitalisation of money is changing who the central actors are, what kinds of interests they pursue, and what kinds of strategies they rely on, producing new implications for the politics of monetary relations. With the development and diffusion of crypto-assets, studies have been devoted to analysing the competition of privately issued forms of money with sovereign money (Landua and Nicole 2024). The G7 and G20 working groups have raised similar concerns, particularly regarding the issuance of global stablecoins (G7 2021). States may respond to new privately-issued digital currencies by imposing regulations on private issuers or issuing new forms of digital currencies themselves. On the latter, Chia and Helleiner (2023) explore whether a defence of national monetary sovereignty drives CBDC national projects and whether these tools could support such an ambition. Building on this approach, Chia (2024) focuses on this dimension, analysing monetary sovereignty as a fundamental rationale for small and developing economies CBDCs. Furthermore, central banks worldwide have stressed the sovereignty dimension in their public documents related to the national CBDC projects, mentioning, on the one hand, the diffusion of digital alternatives (G7 2021). Building on the key arguments raised on CBDCs by Chia and Helleneir (2023), this paper will argue that the digital euro project is an attempt by the EU to strengthen its monetary power (Strange 1966; Andrews 2006, Helleneir 2006), reducing its dependency from foreign payment and settlement systems. This argument aligns with Kirshner (1971), who argues that integrating security and non-economic goals in a currency’s governance are manifestations of monetary power. Cohen (2010) stresses that monetary power has two faces: influence, directly or indirectly and autonomy, meaning the ability to act unilaterally or exercise policy independence. Through an analysis of ECB documents and public speeches, the paper will adopt this approach to answer two key questions (Chia and Helleneir 2023) around the digital euro project: (1) To what extent is the monetary power being invoked by policymakers as a rationale for the digital euro project? (2) How effective might the digital euro project be in supporting monetary sovereignty?