Explaining the Digital Euro: How Europe Plans to Launch a Central Bank Digital Currency
Understanding the Digital Euro Initiative
By Valentina Za
MILAN, July 13 (Reuters) - Talks between the European Parliament, European governments and the European Commission on rules for a digital euro begin on Monday, three years after the legislation was first proposed.
The negotiations aim to produce a final law by the end of the year, paving the way for the European Central Bank to formally approve a digital euro on January 1, 2027 — 25 years after euro notes and coins entered circulation.
The digital currency would then likely be launched in 2029, following a pilot phase due to start next year involving around 40 banks and payment companies.
What is the Digital Euro?
The digital euro would be an electronic version of cash issued by the ECB, making it the only form of central bank money directly available to the public in digital form.
The ECB has pledged to keep cash in circulation indefinitely, but the use of physical money is steadily declining. At the same time, cryptocurrencies — including stablecoins pegged to traditional currencies, mostly the U.S. dollar — have grown in popularity.
The ECB argues that central bank money acts as an anchor of trust for the financial system. A digital euro would be a direct claim on the ECB, whereas digital money currently held by consumers is ultimately a claim on a commercial bank.
Supporters also argue that a digital euro would reduce the euro zone's dependence on U.S. payment firms such as Visa, Mastercard and PayPal, helping protect the bloc's monetary sovereignty in an increasingly digital economy.
The ECB has also warned that stablecoins could pose risks to financial stability and monetary policy because they may draw deposits away from banks and do not always maintain a stable value.
Cost Implications of the Digital Euro
Who Will Bear the Costs?
Consumers would be able to use the digital euro free of charge, either through a dedicated app or via mobile banking apps.
People unable to use smartphones would have the option of a payment card.
Retailers would generally be required to accept digital euro payments because of its legal tender status. The fees banks and payment providers can charge merchants would be capped by law.
Banks, however, argue they should be compensated for the cost of upgrading their systems to handle digital euro payments.
The ECB is working with payment specialists to build the infrastructure and payment standards behind the project and, unlike Visa or Mastercard, plans to provide both free of charge to banks.
Limits and Safeguards
Could I Hold All My Savings as Digital Euros?
The legislation will set a limit on how many digital euros individuals can hold, a safeguard designed to prevent large-scale withdrawals from bank accounts.
A ceiling of €3,000 per person has been discussed. Users would be able to replenish their holdings after spending some of that amount, however, raising concerns among banks about a gradual shift of deposits away from the traditional banking system. To address those concerns, digital euro holdings will not earn interest.
Privacy and Security
How About Privacy?
The ECB says it will not be able to see details of users' payments.
For payments made through banking apps, commercial banks would be able to view transaction data in much the same way they do today for other digital payments.
Offline Payment Mode
The digital euro would also have an offline mode, allowing payments without an Internet connection. In those cases, transaction details would not be recorded, with only the resulting changes in account balances visible.
(Reporting by Valentina Za. Editing by Mark John and Mark Potter)
