Differentiating the Systems

The recent hardware defect that caused a seven-hour outage in the European Central Bank’s (ECB) Target 2 (T2) system, which handles trillions of payments daily, has raised concerns about the ECB’s ability to manage a digital euro. Although the T2 system is integral for settling payments between businesses and consumers across the EU, it also manages investment trades.

While the T2 system was offline, paychecks, government assistance payments, and securities trades faced delays due to the significant volume of transactions processed. However, the ECB has noted that its planned digital euro infrastructure would be based on the TARGET Instant Payment Settlement (TIPS) system, which is designed for real-time payments. Unlike T2, TIPS operates 24/7 and handles more transactions with lower value.

Stablecoins Gaining Ground

The uncertainty surrounding the digital euro’s launch is compounded by the growing reliance on dollar-backed stablecoins. These blockchain-based assets offer security and speed, making them ideal for cross-border transactions with a wide range of use cases.

Furthermore, stablecoins are expanding their global reach. For instance, Circle’s USDC became the first stablecoin approved for use in Japan after that country had previously banned foreign currency-backed digital assets. Such growth makes it challenging for government-backed assets like the digital euro to gain traction, especially if operational concerns persist at the ECB.