Secure payment method throughout Europe: digital euro

These activities are drivers for the ECB:

Other central banks are already much further ahead than Europe in introducing digital central bank currencies. For example, China presented the digital yuan to an international audience for the first time at the 2022 Olympic Games in Beijing.

As digital central bank money, the digital euro can be used like cash alongside coins and banknotes in all eurozone countries – but in virtual form. Apart from a few exceptions, every merchant is obliged to accept the digital euro as legal tender. It guarantees fast, secure and innovative payment. However, it is not equivalent to cryptocurrencies: The digital euro is issued and regulated as legal tender by the ECB. It is therefore just as secure as cash and is only subject to the usual fluctuations compared to currencies outside the eurozone. In contrast, cryptocurrencies are created on the internet independently of central banks and authorities. They have no relation to the usual currencies such as the euro or dollar and are subject to strong exchange rate fluctuations.

Despite these important differences, there are also some similarities: Digital euros as well as cryptocurrencies are both digital means of payment based on a blockchain solution. A digital wallet, a type of digital purse, is required in order to use these means of payment without having to open a bank account.
 

In July 2021, the ECB decided to launch the Digital Euro Investigation Phase and implemented a project team within the ECB. Since then, the ECB has focused on technology and data protection.

In late June 2023, the EU Commission presented a legislative proposal for the digital euro.

The preparatory phase for the introduction of the digital euro began in November 2023 on the basis of a decision by the ECB Governing Council. Such phase is scheduled to last two years, i.e., until the end of 2025. At the end of this phase, the ECB will decide whether to pave the way for the market launch of the digital euro. This phase also includes the conclusion of discussions in the European Council and Parliament on the European Commission’s legislative proposal. It is not possible to predict which position will be able to secure a majority in Brussels and how the legislative proposal will change. However, it is fairly certain that the regulation will be adopted. This will clear the way for the ECB to introduce the digital euro and select providers who could develop a platform and infrastructure for a digital euro.

According to experts involved in the ECB’s “Digital Euro” project, it will take around four to five years before the digital euro is ready for the market. According to the current schedule, it is therefore not expected to be introduced until 2027/2028 at the earliest.
 

Currently, the payment landscape in the eurozone is still highly fragmented. A digital euro would be a pan-European payment solution that is accepted everywhere in the eurozone and therefore represents a simpler and more cost-effective alternative compared to existing payment solutions. The digital euro would strengthen the negotiating position of retailers in relation to payment solution providers. The financial benefits resulting therefrom could then be passed on to customers.

Industry can also take advantage of the digital euro, especially if it is made programmable, which is not yet certain due to the lack of a technical solution.
 

The digital euro will only be successful if it is accepted by large sections of the population. Success factors for acceptance are its design as a legal tender and, when used in the offline version, the possibility of making anonymous payments, as with cash.

The customer does not have to establish a business relationship with a new payment service provider or the ECB. Instead, their house bank can provide the front-end service for the digital euro in relation to the ECB. However, in order to avoid negative effects on financial stability and financing structures, the digital euro will have a transaction limit in the single-digit thousands, meaning that an additional, conventionally managed account will be required for larger transactions.