Decoding the digital euro: A potential new means of payment

The European Central Bank (ECB) is working on the preparatory phase of the digital euro to make it as close to cash as possible in terms of privacy, safety, and accessibility — yet stakeholders remain concerned about its design and necessity.

In recent years, and especially after the COVID-19 pandemic, digital payments and online shopping have increased in the euro area, while cash has fallen as a total share of payments from 72% to 59% between 2019 and 2022 and the number of banknotes in circulation fell for the first time last year.
Following this trend, in October 2021 the ECB launched a study phase on the possibility of issuing its own central bank digital currency (CBDC), the digital euro, to provide an additional form of public money in the euro area.
In June 2023, the EU Commission proposed the legal framework that could pave the way for the ECB to make the digital euro project a reality – and now it’s up to the co-legislators to finalise it.
But what would be the difference between the euro as we know it today and the proposed digital version? How could it work in practice for users, banks and non-bank providers? Would it have a negative impact on financial inclusion or users’ privacy?
Euronews brings you a guide with all the latest developments on the digital euro, comments from experts and the expected timeline of the project.
A digital euro would be public money issued by a central bank (CBDC) – so unlike bank deposits or cryptos, there would be no financial risks attached to it.
“The opportunity we see is that it’s a universally accessible and safe electronic form of money, especially for those on the margins of the economy,” Vicky van Eyck, executive director at the civil society organisation Positive Money, told Euronews.
The ECB has envisioned a digital euro for people and businesses that would be free to use anywhere in the eurozone (made up of 20 of the 27 member states).
It would be more of an electronic equivalent of cash than a popular crypto asset like bitcoin, and in no way should it be seen as the beginning of the end of cash payments.
“The digital euro should not be seen as a replacement, but rather as a complement to these existing forms of money [cash and banknotes], ensuring that it doesn’t undermine the trust and stability they provide,” MEP Markus Ferber (Germany/EPP) told Euronews.
The Frankfurt-based institution has already stressed that the digital euro will not be remunerated [meaning that deposits in digital euros will not earn interest] and will be subject to a holding limit yet to be determined.
The initial idea is for people to use it to pay for everything from rent to groceries with just a mobile phone or a physical card, but it is not intended as a savings vehicle for large amounts.
For example, if a consumer wants to buy groceries, the first step would be to set up a digital euro wallet through a bank or post office. The wallet would then need to be topped up via a bank account or cash deposit.
Once loaded, it could be used to make instant payments both online and in physical shops via a phone or a physical card – and for those with limited (or no) connectivity, there would be an offline version of the digital euro.
“To ensure financial inclusion, the digital euro must be accessible to all EU citizens, including those in remote areas and those who are digitally disadvantaged,” Ferber said, noting the importance of providing education and resources to help people use it effectively.
With this in mind, the Commission has included provisions in its draft legislation to ensure that credit institutions distributing a digital euro should also provide free support and access to digital euro services, even for those without a bank account.
“People have a right to access public money. There is no reason why we should have to rely only on private companies for access to something as basic as payments,” argued van Eyck.
The Positive Money executive director noted that there should always be a backup option to access digital euros through public authorities for those with no access to a bank account.
To date, there is no Europe-wide digital payment solution.
“When you look at what is really available for consumers when you cross borders, go on holidays, study abroad, there are not so many options,” Anna Martin, head of financial services at the European Consumer Organisation (BEUC) told Euronews.
“Your national debit card, if there is any, is not working and then you are basically reduced to US companies such as VISA or Mastercard,” she argued.
In the euro area, 13 out of 20 countries don’t have a national card scheme and rely instead on international providers for digital payments.
A single payment option would therefore address the existing fragmentation in the euro area, and bring some autonomy from international players – as international card schemes account for 64% of all electronically initiated transactions with euro area cards, according to the ECB.
“In terms of European sovereignty and being able to have a real European solution in terms of data protection, in terms of inclusion in your pocket, there is nothing,” Martin said, adding that a digital euro is something consumer associations would like to see.
It would also reduce society’s dependence on the banking sector, say supporters of the digital currency.
The European Central Bank is not the only country considering issuing a CBDC. Norway is studying whether to introduce a CBDC and the UK is in the process of designing a digital pound.
Although the Bank of England has not yet decided whether to introduce the CBDC, it has stated that it may allow people to hold between £10,000 and £20,000 in their digital wallets.
In the EU, however, a €3,000 holding limit is already causing a stir among European banks, which fear that a high holding limit could have a negative impact on bank deposits.
With a €3,000 threshold, the digital euro could lead to an outflow of up to €739bn in bank deposits in the euro area, the European Banking Federation said, citing a study by Copenhagen Economics.
But low limits would make it difficult to use the digital currency as a substitute for a bank account to pay rent or receive a salary, civil society organisations argue.
“We think a €3,000 threshold is quite low,” van Eyck said, adding: “For us, holding limits need to be based on a methodology that takes into account equally the need to access public money and the need to safeguard financial stability.”
Pending final legislation, European banks have called for a comprehensive impact assessment of the costs of infrastructure and implementation, as well as the potential effects of the digital euro on financial stability and current retail banking business models.
“We should [first] see whether what we already have in Europe is sufficient, and whether a digital euro could be based on the facilities and the market infrastructures that we already have in Europe,” Apostolos Thomadakis, researcher at the CEPS think tank, told Euronews.
But ultimately, who would bear the costs?
The Eurosystem – consisting of the ECB and the 20 national central banks of the euro area – has proposed a compensation model to cover the operational costs of issuing a digital euro, under which payment service providers would continue to be able to charge merchants for distribution services.
The Eurosystem would also bear the costs of setting up the digital euro system and infrastructure, as it already does for the production of banknotes.
Another key concern is how to ensure as much privacy as possible for users, given that using cash does not allow you to track one person to another.
“What we would like to see for the online version is that for smaller amounts you can pay in full without tracking the transactions, but for larger amounts you would need some safeguards to prevent money laundering and fraud,” Martin stressed.
The current ECB president, Christine Lagarde, recently said in a group interview that the digital euro could possibly be available to citizens by the end of her mandate – although she admitted that it would need to be an accelerated process.
Lagarde started her non-renewable eight-year mandate in November 2019, so in the best case scenario, the digital euro would not be a reality until at least the end of 2027.
“We’re doing as much as we can on the technical work, but the legal framework will be needed for us to move forward,” Lagarde noted, stressing that the ECB is not the only institution working on this project.
Member states and the European Parliament still need to agree on their positions on how the digital euro should be used – and then they would have to agree the final legislation with the EU Commission in the so-called trilogues.
In the meantime, the ECB will continue its technical work for the preparatory phase, which is likely to last until November 2025.
And only once the legal framework has been adopted will the governors of the national central banks and the six members of the ECB’s executive board decide whether to issue a digital euro.
“Whether it comes in 2027 or in 2028, I think there is no urgency,” Martin said.
“The aim is not just to downsize the project to a minimum and then have a rise to the bottom deal, but to have a really ambitious project, because that’s a currency for the future”.