Money is now mostly digital. In the eurozone, circulating euro banknotes represent only about 10% of the total money supply: the rest is mainly provided by the banking system. Furthermore, the use of cash has been rapidly declining, from 68% of daily transactions in the euro area in 2019 to 40% in 2025. In Sweden, only 10% of consumers paid for their last purchase in stores in 2024. It can be said that the digital euro project is a response to this decline in cash, but Christine Lagarde, President of the ECB, has stated that it is not just a means of payment but also a political statement about Europe's sovereignty. Indeed, the ECB wants to preserve the monetary anchor and the payment system, which today largely depends on digital infrastructures and American companies. Digital money is not just a technological issue but also an institutional and political one, as we state in the report Digital money (CEPR, 2026).
The central bank's digital currency began to be considered when Facebook launched the Libra project, which was seen as a threat to monetary sovereignty by the private sector. Now the US has banned discussion of it and is promoting stablecoins, private digital currencies backed by a currency like the dollar in the form of cash, deposits, or short-term Treasury bills. The goal is for the currency to maintain parity with the dollar, like a money market fund. The two largest stablecoins, Tether and Circle, now jointly hold more US Treasury bills than Saudi Arabia. This is an indirect way to increase demand for US debt in a context where it is growing significantly and needs to be financed. 99% of stablecoins are backed by the dollar. These will drive dollarization in economies where the currency is unstable and in others for international transfers. Furthermore, it turns out that stablecoins have become the preferred digital vehicle for illicit activities, replacing bitcoin and other cryptocurrencies, according to Chainalysis. Indeed, bitcoin is not suitable for transactions, as its value fluctuates greatly.
Digital instruments such as cryptocurrencies, stablecoins, wholesale and retail central bank digital currencies use new rails, but differ in who issues them, what backs them, how they maintain trust, and how risks and benefits are distributed. For example, tokenized deposits are digital rights issued by a commercial bank that represent a claim, 1:1, on the fiat currency held at that institution. They act as a technological wrapper for bank money, allowing it to be moved on the blockchain with the advantage of maintaining the regulatory and supervisory protections of traditional banking.
Digitization reopens classic questions about the monetary system: who should create money, how should payment methods be regulated, and particularly when private digital liabilities (wallets) are used on a large scale. The EU is considering introducing the digital euro for both wholesale and retail transactions. It is an opportunity to rethink banking architecture, in which the central bank will continue to play a crucial role as lender of last resort for the stability of the system.
The future of the international monetary system could be unipolar, with the dollar at its center, leveraging the dominance of dollar-denominated stablecoins, acting as a centripetal force, along with the depth and liquidity of the US bond market and the absence so far of credible alternatives in cross-border payments. However, there are significant centrifugal forces: geopolitics, first and foremost, an area in which China promotes the yuan and Europe the euro, and in which several countries, such as Russia and Iran, are fleeing the dollar to avoid extraterritorial US sanctions. It is therefore not surprising that the regulation of digital currencies differs across jurisdictions such as the US, the EU, and China, which hinders the necessary international coordination in supervision and platform interoperability.
Digital currencies are as much a technological competition as a competition for institutional power. Banks seek to protect deposit franchises and their financing, and central banks seek to preserve the profit they obtain from issuing currency, monetary autonomy, and the public anchor of monetary order. At the same time, it is a competition for technical integrity in a world exposed to cyberattacks, augmented by AI and the prospect of quantum computing that can break codes. The monetary system will only be stable if there is solid institutional governance with secure transmission channels.
