The digital euro could undermine the financial stability of non-EU countries with weak economies by crowding out national currencies, as stated in the speech by a member of the governing council of the European Central Bank (ECB) Fabio Panetta. He said:
“The digital euro may spread to third countries to such an extent that it will crowd out local currencies. This will lead to “euroization”, which can complicate the implementation of monetary policy and lead to financial instability.”
He stressed these risks will be higher for emerging economies, as their national currencies are too weak and they are heavily dependent on trading and financial partners.
Panetto also noted that the launch of a CBDC in the EU “could exacerbate the transmission of shocks between economies and exchange rate volatility.” According to him, liquidity, low risk and interest rate will make the instrument attractive to international investors.
At the same time, the official said that the emission of the digital euro will reduce the EU’s dependence on the dollar and increase the financial stability of the region. Panetta called the dollarization of international payments “colonization” and noted that “two US intermediaries [Visa and MasterCard] handle two-thirds of card payments in Europe.”