Making Sense of Digital Money: Europe's Strategic Response to the Global Digital Currency Revolution

The future of money isn't just about technology — it's about geopolitical power. As nations worldwide redefine what money is and who controls it, digital currencies have emerged as powerful tools of sovereignty and economic influence. Our new report cuts through the confusion surrounding digital money, clarifying key concepts that are often misunderstood or conflated.

The Digital Money Landscape: Four Distinct Players

The report identifies four main types of digital money, each serving different purposes:

Central Bank Digital Currencies (CBDCs): The digital euro comes in two forms — retail CBDC for everyday citizen payments and wholesale CBDC for institutional settlement. These represent public digital money issued directly by the European Central Bank.

Stablecoins: Privately issued tokens pegged to fiat currencies, primarily used in digital trading and cross-border payments. Under EU regulation (MiCAR), these face strict reserve backing and usage limitations.

Deposit Tokens: Bank-issued digital representations of traditional deposits, designed for programmable corporate payments and tokenized asset settlement within regulated finance.

Crypto-assets: Decentralized tokens like Bitcoin and Ethereum that operate as parallel financial infrastructure, primarily used for speculation and alternative finance.

America's Dollar Diplomacy Strategy

The US has embraced a market-led approach, sidelining public digital currency development in favor of private stablecoins. This strategy extends dollar dominance through private infrastructure rather than government-issued digital money. The report highlights how even political figures are leveraging crypto — citing the Trump Coin as an example of crypto becoming a vehicle for political capital and influence.

Two key US legislative efforts — the GENIUS Act and STABLE Act — aim to regulate stablecoins while positioning them as instruments of digital monetary influence globally.

Europe's Sovereignty Response

Europe is taking a distinctly different, public-first approach. The MiCAR regulation caps foreign-denominated stablecoin circulation and imposes strict requirements on digital money operators. However, the report argues that true sovereignty requires more than defensive regulation — it demands credible, scalable infrastructure backed by wholesale CBDC and interoperable public-private systems.

The Real Competition

Contrary to popular belief, these digital money forms don't all compete directly. The meaningful competitive space lies in settlement infrastructure and institutional finance, where stablecoins, wholesale CBDCs, and deposit tokens vie to become the default settlement instrument in tokenized finance.

The different types of digital money, from CBDCs to Stablecoins and deposit tokens, are often mistakenly portrayed as direct competitors. In reality, they serve distinct use cases across the financial ecosystem. For example, retail CBDCs like the digital euro are intended for everyday commerce, including POS payments, online shopping, and peer-to-peer transfers, offering the public a digital form of central bank money. While they can also be used in tokenized environments, their focus is on broad accessibility, public trust, and monetary sovereignty. In contrast, stablecoins tend to find utility in crypto-native or cross-platform settings, where programmability, global interoperability, and 24/7 liquidity are critical.

The more meaningful competitive landscape lies in the infrastructure for settlement and institutional finance, where stablecoins, wholesale CBDCs, and deposit tokens are vying to become the default settlement layer in tokenized finance. In this space, the competition centers around scalability, regulatory compliance, settlement finality, and interoperability — not just monetary form.

Looking Forward

The report emphasizes that the future of digital money won't be defined by a single instrument, but by how effectively public and private forms can coexist and evolve. For Europe, this means not just sovereign issuance, but building infrastructure, ensuring interoperability, and driving institutional adoption.

As the global digital money landscape continues to evolve, understanding these distinctions becomes crucial for policymakers, businesses, and citizens navigating this new financial frontier.

Download the full DEA Explainer on Digital Money for a comprehensive analysis.