Digital euro project
Digitalisation has had a significant impact on our lives in recent years, while it has also brought major changes to financial services. Payments represent an area that is developing and changing rapidly with the emergence and availability of new technologies. Development and change are also dictated by the needs and expectations of users, who are gradually replacing cash with digital payment instruments. Eurosystem central banks are also actively responding to the advances brought about by digitalisation by developing their own systems and solutions, while encouraging the financial sector to develop secure and effective payment solutions. In the scope of the digital euro project, we are thus investigating the possibility of issuing a central bank digital currency in the form of a digital euro, which would make it possible for consumers and companies to make secure, fast and cost-effective payments tailored to the digital era.
Reasons to issue a digital euro
In addition to supporting digitalisation, there are many reasons that could justify the issuance of a digital euro. Should the need for cash in the euro area fall significantly, this would mean a shift towards the use of (private) digital payment solutions. A digital euro could represent an additional and more secure payment method because it would be issued by an institution whose claims are risk-free. It would not replace cash, which is an (physical) equivalent claim against the central bank, but would be issued as a complement to cash, facilitating its use in the digital world.
A digital euro could also address the growing popularity of cryptoassets and stablecoins, as well as the rapid development of the central bank digital currencies of foreign countries, which could become an alternative for everyday payments in the euro area in the future. In such circumstances, a European Central Bank digital currency would facilitate the preservation of European financial sovereignty and stability.
In this context, the possibility of issuing its own central-bank digital currency is also important for the Eurosystem in order to preserve the international role of the euro, particularly if people outside the euro area were also able to access a digital euro.
In addition to the above-stated reasons, a digital euro represents an opportunity to strengthen cooperation between central banks and the private sector, and the development of payments in general, as its issue would further encourage innovations in the area of retail payments.
Objectives being pursued in connection with a digital euro
Today, central banks ensure the supply of cash and accept deposits from commercial banks (so-called ‘public’ or central bank money). The private sector provides for its own payment solutions, i.e. payments between payment accounts, card payments, etc., based on commercial bank money (so-called ‘private money’).
With a digital euro, end-users (consumers and companies) would have the possibility of making payments with public money anytime, anywhere in euro area countries, in different situations (both payments in (online) shops 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. That role preserves users’ confidence in the euro, which is supported by the convertibility of different (private) forms of money into cash or, if issued, a digital euro.
A digital euro would provide users an additional payment method that is truly European. 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 companies.
A digital euro, as a single euro area payment instrument, could also contribute to the improved 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.
The Eurosystem began an analysis of central bank digital currencies in 2017. Since then, activities in that area have intensified. Following the publication of the Report on a digital euro in 2020, the Eurosystem organised a public consultation with the professional and 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 October 2023 to proceed to the next, preparation phase of the project. If a decision is subsequently made to issue a digital euro, the first practical uses for payment with that currency could be available to users in by the 2027.
The European Commission published a legislative proposal for the digital euro on 28 June 2023. That proposal will serve as the legal framework for the introduction of a digital euro as a complement to cash. Nevertheless, 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 provide answers to basic questions regarding the design and distribution possibilities of a digital euro. The investigation phase addressed key questions, such as how the digital euro would look, for whom would it be intended and when would it be available. All of the answers obtained during the aforementioned phase contributed significantly to the progress of the preparation phase of the digital euro project.