The European Union can pursue financial sovereignty through the digital euro, but sovereignty over money doesn’t mean sovereignty over the markets that form around it, writes Jeff Alvares.
The European Union can pursue financial independence from American firms through the digital euro. But sovereignty over money doesn’t mean sovereignty over the markets that form around it. This distinction matters as European policymakers debate whether a central bank digital currency (CBDC) can serve as an industrial policy tool to develop a homegrown payment ecosystem free from American dominance. The question is not whether to issue a digital euro, but who controls the markets built on top of it.
European Central Bank (ECB) President Christine Lagarde has framed the digital euro as essential for bolstering the single currency’s international role. It would offer the EU a sovereign alternative to foreign payment service providers (PSPs) and potentially expand the euro’s cross-border use. Piero Cipollone, a member of the ECB’s executive board, has repeatedly warned that Europe’s capacity to act independently could be constrained so long as core digital payment services remain in non-European hands. His remarks echo those of Philip Lane, another ECB executive board member, for whom the digital euro would reduce reliance on foreign payment schemes, applications, and stablecoins, countering Europe’s exposure to economic pressure and coercion.
The concern is not abstract. Visa, Mastercard, and other international card schemes now process 66 percent of eurozone card transactions, and 13 euro-area countries lack any domestic digital payment alternative. Even where domestic card schemes exist, they depend on partnerships with international networks to process cross-border transactions within the eurozone. When these networks suspended operations in Russia after the Ukraine invasion, it crystallized for many the vulnerability of depending on foreign financial infrastructure. In a recent open letter, 70 European academics—including Thomas Piketty, Daniela Gabor, and Paul De Grauwe—urged policymakers to embrace the digital euro’s full potential, warning that political negotiations risked hollowing out a project essential for European sovereignty.
Against this backdrop, EU banks have mounted a counterargument. They contend that a central-bank-issued digital euro would be counterproductive to private European payment solutions already in development. Wero, a mobile payment scheme launched by the European Payments Initiative in 2024, is the most notable example. Backed by 16 major private European PSPs, Wero has enrolled over 40 million users and aims to offer a pan-European alternative to card networks. The banks’ implicit message is clear: let private enterprise solve Europe’s payment sovereignty problem. These concerns have reverberated in the European Parliament. Fernando Navarrete Rojas, the rapporteur coordinating the legislative process, presented a draft report in November 2025 that departs significantly from the European Commission’s original proposal. His approach would establish an offline digital euro—a token-based version enabling device-to-device payments without network connectivity—immediately, while conditioning the online version on finding that no suitable private pan-European payment solution exists.
Both sides of this debate, however, share a common blind spot: they assume that European policymakers have more freedom to shape digital payment markets than international trade law actually permits. A missing piece in the conversation is the General Agreement on Trade in Services (GATS), which obligates World Trade Organization (WTO) members, including all EU states, to grant market access to foreign providers of electronic payment services on the same terms as domestic firms. Creating the digital euro, however ambitiously designed, does not exempt Europe from its trade obligations. While EU members’ GATS commitments in electronic payment services vary by mode and member state, they are sufficiently broad that payment schemes and applications fall within their coverage. Legitimate control over digital money does not extend to foreclosing the competitive markets above it.
The analytical framework I developed in a recent ProMarket article applies directly here. Payment systems operate on a four-layer stack: money (layer one), settlement infrastructure (layer two), payment schemes (layer three), and applications (layer four). For CBDCs, the first two layers collapse: the currency exists as entries in the central bank’s ledger, placing it within monetary sovereignty and beyond trade commitments. But here is the critical point: the scheme rules and wallet applications are not constitutive of the money. They are commercial layers built on top of the monetary infrastructure. A CBDC balance recorded on the central bank’s ledger could, in principle, be accessed through different competing schemes or wallet applications, just as a bank deposit can be accessed through Visa or Mastercard. When the central bank designs rules for how users access the digital currency, or when it determines which PSPs may offer wallets, it is making commercial and regulatory choices, not exercising core monetary functions.
The ECB’s proposal fuses the digital euro as money and the infrastructure recording and settling balances (layers one and two), creates a unified payment scheme governed by a common rulebook (layer three), and regulates distribution through authorized wallets (layer four). By opting for a structure where PSPs distribute the digital euro to the public, the ECB implicitly recognizes that scheme- and application-layer competition is architecturally feasible. The wholesale CBDC infrastructure will be a sovereign monopoly—rightly so—but nothing in that design requires excluding private firms from setting up alternative payment schemes or offering competing wallet services.
However, while framing this as an “open” architecture permitting voluntary integration with private schemes, the ECB’s“Fit of the digital euro in the payment ecosystem” report asserts that “mandatory acceptance of the digital euro is the only way to ensure that these standards are implemented across the entire market.” The Eurosystem will also bear all scheme and processing costs, charging no fees to participants. The report acknowledges the tension these options create: PSPs stand “in stark contrast with the ECB perspective,” arguing that, “where domestic card schemes still enjoy a strong market position, the digital euro is more likely to disincentivize the development of those solutions.” An architecture is not “open” when participation is legally compelled.
The ECB’s design choices directly invoke two core disciplines of trade law. The first is market access (GATS Article XVI): will private payment schemes, domestic or foreign, be permitted to operate at all, or will the digital euro’s mandatory acceptance by merchants and zero scheme fees de facto foreclose competition? The second is national treatment (GATS Article XVII): even if private providers are permitted to participate, will foreign schemes and applications face equal conditions, or will the system’s design advantage European service providers?
On market access, the digital euro creates a dual barrier that affects all competing schemes equally, European and foreign. Merchants must accept it by law, ensuring universal reach. And the Eurosystem will bear all scheme and processing costs, a subsidy the ECB likens to banknote production. But the analogy is misapplied. There is no scheme layer between banknotes and users. Digital payments are different: they require rules governing acceptance, dispute resolution, and transaction processing—the scheme layer where private firms ordinarily compete. By extending public subsidization from infrastructure (where it is uncontroversial) to the scheme layer (where competition is feasible), the ECB creates conditions under which no private scheme, European or foreign, can viably compete. The result is the same “dual-barrier” dynamic that has drawn scrutiny to Brazil’s Pix instant payment system: legal requirements ensuring universal reach, reinforced by economic conditions that make competing schemes’ business case unviable even if the architecture technically permits it.
On national treatment, the digital euro framework raises concerns about discrimination targeted at foreign suppliers. The ECB report states that its “fundamental principle for global digital wallets ” is “same rights, same obligations.” Yet the same document warns that global digital wallets should not “disproportionately benefit” from distributing the digital euro, expressing concern that Big Tech companies might profit from “distributing the solution to end users” while European PSPs focus on “the cost-driven parts like handling risk management and other non-value-adding activities.” This is not neutral language. It signals that foreign providers participating in the digital euro ecosystem will face scrutiny that domestic providers will not. When a regulator explicitly states that foreign firms should not benefit “disproportionately” from a market they are nominally permitted to enter, the playing field is not level. Whether such language ultimately translates into a formal violation would depend on implementation. But under WTO jurisprudence, regulatory intent and design are relevant indicators of de facto discrimination.
If Visa, Mastercard, or American fintech firms seek to offer digital euro payment services and are denied access or face discriminatory licensing conditions, that is a potential GATS issue, not a matter of monetary sovereignty. GATS excludes from its obligations “services provided in the exercise of governmental-authority”—services neither commercial nor competitive with private suppliers. This exception covers central banks’ function of issuing and recording the currency, not a vertically integrated payments business that extends monopoly control from the infrastructure layer up into competitive markets. The fact that the digital euro serves a public purpose does not change this analysis. GATS carves out services that inherently preclude competition, not commercial services that happen to be publicly provided.
What would a valid justification require? Under GATS, restrictions on market access may be permissible if they are necessary to achieve legitimate public policy objectives and no less trade-restrictive alternatives are reasonably available. Technical necessity, institutional context, and data governance concerns may justify targeted measures. But they must be proportionate, evidence-based, and ideally time-limited. Using the digital euro to advantage European PSPs systematically over foreign competitors would be difficult to defend on these grounds, especially when the ECB’s own design demonstrates that infrastructure and scheme layers can be separated.
The ECB might argue that digital currency requires unified scheme-level control to ensure security, finality, and integrity in ways that physical banknotes do not. But the intermediated distribution model undermines this defense. If currency integrity required public control at every layer, the ECB would not delegate distribution, customer verification, and transaction processing to private institutions. Relying on PSPs for these operational functions concedes that separation is feasible without compromising monetary integrity. The ECB cannot invoke inseparability to justify scheme-layer control while simultaneously designing a system premised on separability.
The EU might invoke financial stability or data sovereignty as justifications. But the EU data protection regime already applies to any firm processing European personal data, regardless of origin. Prudential oversight can be imposed through non-discriminatory licensing conditions, as it is for banking and payment services today. The necessity test asks whether exclusion is required to achieve these objectives, or whether regulation applied equally to all participants would suffice. Where non-discriminatory alternatives exist, foreclosure fails the least-trade-restrictive standard.
ECB officials have themselves acknowledged that the dominance of foreign payment providers reflects a lack of European competitiveness and innovation, compounded by regulatory fragmentation across member states. But this diagnosis weakens any necessity defense under trade law. Fragmentation and underinvestment are domestic policy and business failures, not market failures that foreign rivalry caused or that excluding foreign suppliers would cure. GATS necessity tests are not designed to shield incumbents from the consequences of their own choices. Even if one views the dominance of Visa and Mastercard as entrenched through network effects and data advantages, the remedy under trade law is pro-competitive regulation—interoperability mandates, data portability, fee caps—not exclusion of foreign providers.
The ECB’s own consultations expose a definitional problem. European PSPs expressed concern that the digital euro would “capture transactions from European private solutions rather than from international card schemes.” If the measure harms the industry it purports to protect, the necessity defense fails on its own terms. This is not strategic autonomy, but rather state-backed crowding out of private innovation, European and foreign alike. Under GATS, a measure cannot be “necessary” to protect domestic providers if those providers identify it as a threat to their viability.
Europe’s financial autonomy is a legitimate objective. So is developing competitive European payment solutions. But achieving these goals requires working within international trade commitments, not assuming they can be bypassed through invocations of monetary sovereignty as legal cover for what is, in substance, a publicly subsidized payment scheme with mandatory participation. The United States Trade Representative’s Section 301 investigation into Brazil’s Pix signals that these issues will be contested. Once CBDC architectures become locked in, with millions of users and billions in transactions, reform becomes economically and politically impractical. Europe should not assume it will be exempt. Legal clarity must come before launch.
The path forward requires designing the common rulebook to permit genuine competition among schemes and applications, which means accepting that foreign providers may succeed within it, or admitting the trade law constraints and negotiating modifications to EU services commitments. What the EU cannot do is claim an open architecture while mandating participation and charging no fees, invoke sovereignty while operating a commercial scheme, and express alarm that foreign firms might “disproportionately benefit” from a system they are nominally permitted to enter. This trio of positions is not a sustainable legal strategy; it is an invitation for a trade dispute.
Author Disclosure: Jeff Alvares is senior counsel at the Central Bank of Brazil. The views expressed are his own and do not represent those of the Central Bank of Brazil or the Brazilian government.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
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