The Foundations of National Sovereignty: The Role of Central Bank Money

It is with great pride that I address you today at Sapienza University, as we gather to celebrate the eight decades since the establishment of the Italian Republic. This anniversary marks not only the restoration of our national identity following a tumultuous period of fascism and warfare, but also our commitment to democracy, as enshrined in the Italian Constitution adopted in 1948. The Constitution articulates a foundational principle: “Sovereignty belongs to the people and is exercised by the people within the frameworks established by the Constitution.”

Today, we reflect on an important transition: the shift from dictatorship to constitutional democracy, where the sovereignty of the populace is upheld through respect for fundamental rights and freedoms. This principle has formed the bedrock of a republic characterized by hard work, solidarity, and the protection of rights.

We are now living in an era markedly different from that of our predecessors, where the defense of our national sovereignty is inseparable from the preservation of the European Union’s integrity. This does not imply an abandonment of sovereignty; rather, European integration is vital for its fullest expression in a globalized world. Article 11 of our Constitution stipulates that Italy may consent to “limitations of sovereignty as necessary to ensure peace and justice among Nations.” Thus, our EU membership allows us to effectively pursue our constitutional objectives, reinforcing our sovereignty through shared governance.

Monetary Sovereignty: A Key Attribute

As a member of the Executive Board of the European Central Bank, I want to delve into a critical aspect of sovereignty—monetary sovereignty. Control over our currency, encompassing its issuance, value, and function in finances and payments, constitutes a fundamental attribute of contemporary sovereignty. Losing control over our monetary system equates to relinquishing our economic future. The euro’s design aims explicitly to safeguard and enhance our monetary sovereignty.

Central banks hold the exclusive authority to issue legal tender, which acts as an anchor for the financial system, ensuring all other forms of money maintain convertibility at par. This control empowers the regulatory authorities to uphold price stability and dictate financing conditions across the economy.

Our foremost task is to ensure that the euro maintains its central role amidst evolving technological landscapes and geopolitical shifts. The resilience of the euro, even through various crises, underscores our monetary sovereignty.

The Euro as a Global Stabilizing Force

Currently, the euro’s stability has been shown time and again, establishing itself as the second most significant currency in the global monetary system. Its share in worldwide currency usage approaches 20%, a percentage that has steadily increased over time. Recent geopolitical challenges have presented a unique opportunity for the euro to act as a stabilizing force, particularly as market disruptions have prompted the euro to serve as a safe haven for investors.

Public trust in the euro remains robust, with 82% of euro area residents expressing confidence in our shared currency. This trust obliges us to earnestly uphold our responsibility in defending the euro and our monetary sovereignty against emerging challenges.

Addressing Dependencies and Future Preparedness

We must adapt to the realities of a less stable world, where dependencies on external entities for crucial economic functions can endanger our sovereignty. In the realm of digital payments, we find ourselves heavily reliant on a few non-European solutions. It is imperative that we establish independence in our payment systems.

For instance, international card schemes dominate two-thirds of debit card transactions in the euro area, while 13 of the 21 euro area nations lack domestic card solutions. This degree of dependency on external systems for such vital needs cannot persist.

Digital Euro: A Response to Evolving Needs

The central bank holds the responsibility for providing payment means, exemplified by our issuance of banknotes. However, with an increasing number of transactions conducted online, there is a pressing need to develop a digital currency. Preparations for the digital euro are underway, pending the legislative adoption of the digital euro Regulation, which has recently gained momentum within the European Parliament. If passed by the end of 2026, we aim to launch a pilot version in 2027, with full implementation targeted for 2029.

The digital euro will provide a European public payment solution, utilizing European technology and infrastructure to facilitate transactions both online and offline across the Eurozone. This innovation will also empower banks to offer comprehensive digital payment solutions without necessitating dependence on external systems.

Wholesale Market Innovations

In the domain of wholesale markets, where interbank payments relate closely to securities transactions, advancements in technology such as tokenization and distributed ledger technology (DLT) have introduced new efficiencies. These tools facilitate digital representation and management of assets around the clock. However, to harness these innovations, we must ensure that settlement remains anchored in central bank money, thus preserving our monetary sovereignty.

Through our endeavors to integrate commercial DLT platforms with TARGET services, we aim to allow the settlement of tokenized asset trades in central bank money. This initiative will bolster the efficiency of our financial infrastructure while enhancing our sovereignty in the monetary arena.

The Euro’s International Role

Recent discussions have highlighted the euro’s position in the global economy, outlining the need for a stronger international presence. The rise of US dollar-denominated stablecoins has created challenges for the euro, particularly in cross-border transactions. To address this, we are actively enhancing connections between the TARGET Instant Payment Settlement (TIPS) system and other international payment frameworks, allowing smoother and faster transfers across borders.

Conclusion: Safeguarding Sovereignty

Founding the euro allowed European nations to reclaim their monetary sovereignty, a benefit increasingly vital in our uncertain world. This shared sovereignty has fostered security and stability, realizing the population’s aspirations for peace and prosperity.

As we confront escalating challenges tied to our reliance on external systems for payments and finance, we must fortify our infrastructure and enhance the resilience of our economy. By strengthening the euro and addressing our dependencies, we can safeguard the sovereignty entrusted to us by our Republic and Constitution as we celebrate 80 years of the Italian Republic.