Digital Euro

Digitalisation has had a significant impact on our lives in recent years, while it has also brought major changes to financial services. Payments are one area that is developing and changing rapidly with the emergence and availability of new technologies. Development and change are also being dictated by the needs and expectations of users, who are gradually replacing cash with digital payment instruments. Eurosystem is actively responding to the advances brought about by digitalisation by developing own systems and solutions, while encouraging the financial sector to develop secure and effective payment solutions. In the digital euro project, we are thus investigating the possibility of issuing a central bank digital currency – the digital euro – which would enable consumers and businesses to make secure, rapid and cost-effective payments fit for the digital era.

Arguments for issuing a digital euro

In addition to supporting digitalisation, there are several arguments in favour of issuing a digital euro. If demand for cash in the euro area was to decline markedly, it could lead to a shift towards the use of (private) digital payment solutions. A digital euro would serve as an additional form of payment, offering greater safety since it would be issued by the central bank, whose claims are risk-free. It would not replace cash, but it would be issued as a complement to cash, facilitating its use in the digital world.

A digital euro would also address the growing popularity of cryptoassets and stablecoins, as well as the rapid development of central bank digital currencies in third countries, which could become alternatives for everyday payments in the euro area. In such circumstances, European central bank digital currency would help preserve European financial sovereignty and stability.

The possibility of issuing its own central bank digital currency is also important for the Eurosystem in maintaining the international role of the euro, particularly if people outside the euro area were given access to a digital euro.

A digital euro  presents a good opportunity to strengthen cooperation between central banks and the private sector while driving the development of payments in general, as its issuance would further encourage innovation in retail payments.

Objectives in connection with the digital euro

Currently, central banks ensure the supply of cash and accept deposits from commercial banks (public or central bank money), whilethe private sector provides its own payment solutions, i.e. payments between payment accounts, card payments, and more, based on commercial bank money (private money).

With a digital euro, end users (consumers and businesses) would have the possibility of making payments with public money anytime, anywhere in euro area countries, in different situations (payments in shops and online, and directly between users). The possibility of making payments with money issued by a central bank would maintain its role as a so-called monetary anchor. This role helps to maintain users’ confidence in the euro, which is backed by the convertibility of different (private) forms of money into cash or, if issued, a digital euro.

A digital euro would provideend users with an additional, truly European, payment method. This would strengthen Europe’s strategic autonomy, as today’s electronic payments at points of sale are dominated by card payments based on payment schemes owned by non-European firms.

A digital euro, as a common euro area payment instrument, could also improve the efficiency of the entire European payment ecosystem, as the cost of making and receiving payments (on the merchant side) could be reduced. Finally, a digital euro would make European payments more resilient, as it could be used to make payments even without an internet connection.

Progress of the project

The Eurosystem began analysis of central bank digital currencies in 2017, and activities in this area have since intensified. Following the publication of the Report on a digital euro in 2020, the Eurosystem organised a public consultation with the profession and the general public regarding the expected characteristics and functionalities of a digital euro. In July 2021, the Governing Council of the ECB approved the start of the two-year investigation phase of the digital euro project, which began in October 2021 with the aim of analysing the potential design of a digital euro. Based on the conclusions of the investigation phase, a decision was made in the autumn of 2023 to proceed to the preparation phase of the project. If a decision to issue a digital euro is subsequently made, it is first expected to be available to users for making payments some time after 2027.

The European Commission published a legislative proposal for the digital euro on 28 June 2023. The proposal will serve as the legal framework for the introduction of a digital euro as a complement to cash. However, a decision to issue a digital euro has not yet been made.

The objective of the investigation phase of the digital euro project was to  answer key questions regarding the design and distribution of a digital euro. The investigation phase addressed questions, such as how the digital euro would look, who it would be intended for, and when would it be available. The answers obtained during the aforementioned phase contributed significantly to the progress of the preparation phase of the digital euro project.