The Digital Euro's Missing Conversation: Monetary Sovereignty Beyond the Euro Area

The digital euro has, from the outset, been framed as an instrument of monetary sovereignty—a phrase the ECB invokes persistently without a precise definition. The proposed Regulation on the digital euro (PRDE) reflects that ambiguity. Nowhere is this more visible than in how the framework treats distribution beyond the euro area: distribution to third countries requires a Council-authorised international agreement, while distribution to non-euro-area Member States requires only a bilateral arrangement between two central banks. That asymmetry means that the digital euro’s reach into Warsaw or Stockholm will be governed by a technocratic process, while its reach into Monaco or Podgorica will require political authorisation at the highest level. With trilogues expected to conclude shortly, the window to correct this is closing.

Sovereignty as justification, undefined

The ECB has framed the digital euro as a sovereignty instrument from the outset, and with some consistency. Its 2023 investigation phase report identified the dominance of non-European actors in European payments as a central concern; every major ECB communication since has returned to the same theme; every major ECB communication since has returned to the same theme. Speaking before the European Parliament's Committee on Economic and Monetary Affairs on 3 June 2026, Executive Board member Piero Cipollone described the digital euro as establishing uniform European payment standards that would free the continent from dependence on non-European card schemes, signalling that participants will be announced in July 2026 and the pilot will follow in 2027.

The framing is intelligible but underexamined. Monetary sovereignty is not a single thing. It encompasses the formal legal power to issue a currency, set monetary policy, or regulate payment systems—the de jure competence the EU Treaties allocate with some precision. But it also encompasses the de facto capacity to make those powers effective: to transmit monetary policy and to maintain the conditions under which currency circulates within and outside a jurisdiction. These two dimensions are co-constitutive but can come apart. A state can retain every formal monetary competence the law allocates while progressively losing the practical capacity to exercise it if the infrastructure of its monetary system is increasingly shaped by rules it did not set. The ECB’s sovereignty discourse consistently omits this distinction, with significant repercussions for the approximately 96 million EU citizens who live outside the euro area.

Digital euro distribution outside the euro area: the asymmetry

The PRDE governs the distribution of the digital euro beyond the euro area through two structurally distinct routes. Article 19 covers third countries: before the digital euro can reach users there, the Council—acting on a Commission recommendation and after consulting the ECB—must decide on the arrangements for negotiating and concluding a prior international agreement. Political actors are involved at every stage, and the agreement must meet substantive conditions, including requirements for equivalent supervisory frameworks. Article 18 covers non-euro-area Member States. Here, a bilateral arrangement between the ECB and the relevant national central bank suffices, following a notification by the Member State to the Commission and other Member States. There is no Council decision and no Parliamentary involvement; instead, entrusting such distribution to a technocratic arrangement between governmentally independent institutions.

This asymmetry is a constitutional feature of the European (Monetary) Union. Unlike third countries, non-euro-area Member States are subject to the principle of sincere cooperation and formally obliged to adopt the euro upon meeting the convergence criteria – a distinction faithfully reflected in the PRDE. The difficulty is that formal monetary competence is different from the practical capacity to govern monetary conditions. On the latter dimension, the difference between Warsaw and Monaco matters considerably less than the legal architecture assumes.

Notwithstanding, Article 18 is not entirely without accountability: the distribution request must come from the Member State itself, which must then enact implementing legislation. But the compliance obligation is potentially dynamic—Member States may be required to give domestic effect to prospective ECB digital euro measures, not merely those in force at the arrangement's conclusion. A non-euro-area national central bank must ‘abide by any [such] rules, guidelines, instructions or requests’ as a condition of continued distribution, placing it under scrutiny functionally comparable to euro-area central banks despite the Treaty’s careful delineation of competences.

Article 21(2) PRDE deepens the picture. It imposes a standing obligation on the ECB and non-euro-area central banks to cooperate to render payments between the digital euro and national currencies interoperable. While interoperability promises genuine user benefits, the technical choices it entails condition how a non-euro-area Member State structures its payment system infrastructure. The PRDE's legal-institutional configuration, taken as a whole, appears oriented towards consolidating the euro area's monetary reach within the Union rather than preserving the monetary autonomy of the states receiving the instrument.

A pattern monetary history knows well

This dynamic is not novel. An illustrative example is the informal sterling area that emerged after Britain departed from the gold standard in 1931. A substantial group of independent sovereign states—Australia, New Zealand, and India among them—continued to peg their currencies to sterling and hold their reserves in London. None had surrendered formal monetary sovereignty; each retained full de jure competence over its domestic monetary system. Yet the monetary conditions under which their economies de facto operated were shaped significantly by decisions taken in London, transmitted through sterling reserves and correspondent banking networks. The institutional architecture exerted influence without court involvement: the effect arose from how the system was built and used.

The digital euro replicates this dynamic at a higher level of technological sophistication. Once standardised infrastructure is integrated cross-border, the network effects are self-reinforcing, as Cipollone’s June 2026 statement illustrated perhaps more clearly than intended. A non-euro-area Member State whose payment infrastructure embeds digital euro standards does not lose its formal Treaty rights. What changes, however, is the practical environment – reflecting ECB design choices – within which its monetary authorities operate: holding limits, waterfall functionality, access conditions, settlement parameters, and interoperability standards come to condition the monetary environment that formal competence is supposed to control.

The accountability gap, and how to close it

None of this argues against extending the digital euro beyond the euro area. The case for interoperability and lower transaction costs within the internal market is real and urgent. Instead, where the PRDE itself acknowledges the risk of de facto euroisation under recital 47, the accountability framework ought to be proportionate to that risk, which it is currently not. 

Two targeted corrections are worth considering. First, the Article 18 arrangement should require a formal and legitimising Governing Council decision, publicly available and subject to review, for each extension of the digital euro into non-euro-area territory. Second, the requirement for a non-euro-area Member State to follow prospective ECB measures pertaining to the digital euro should be conditioned on renewed legal and political consent before it attaches. Such a consent requirement can be embedded in a mandatory ‘sovereignty clause’ in distribution arrangements: a mechanism through which a non-euro-area Member State can seek review or temporarily suspend the application of ECB measures it reasonably considers encroaching on its exclusive monetary domain.

The ECB’s persistent invocation of monetary sovereignty as the digital euro’s foundational justification carries an implicit obligation: if monetary sovereignty is worth protecting when it belongs to the Union, it is also worth protecting when it belongs to Member States that have not yet joined the euro area. The digital euro, in its current legislative form, advances one at the expense of the other. Before the pilot launches, the co-legislators should ask whether a framework designed to advance European monetary sovereignty has been designed with sufficient care to protect it.

Jakub Suchnicki is a PhD candidate at the University of Edinburgh.