Digital euro

The digital euro is the project of the European Central Bank (ECB), decided in July 2021, for the possible introduction of a central bank digital currency (CBDC). The aim is to develop a fast and secure electronic payment instrument that would complement the euro for individuals and businesses in its existing form as cash and in bank accounts, and would be issued by the European System of Central Banks of the Eurozone.
After concluding a two-year investigation into the design and distribution models for a digital euro, the ECB decided on 18 October 2023 to enter the preparation phase, which involves tasks such as finalizing the rulebook and selecting providers to develop the required platform and infrastructure, setting the stage for the potential issuance of a digital euro.
Arguments and motives for the introduction of a digital euro are, according to the ECB:
In addition to these motives, the possibility of a further decline in the use of cash as a means of payment plays a role in the discussion on the digital euro.
While Christine Lagarde has publicly addressed some of these risks, critics consider her responses inadequate. Critics point to the digital Renminbi CBDC and how it has experimented with many of the right-restricting features (including geo-fencing, geo-tracking, amount limits, time limits, etc). They also point to the e-naira and Venezuelan Petro and their monetary policy issues. Similarly de-banking issues and financial censorship have been on the rise in recent years, critics fear that a centrally planned, centrally controlled and managed system would have the potential for a much higher level of censorship and discrimination by authorities.
The prototype developed by the ECB as part of the investigation phase includes conditional payments, this points to the potential for programmability of the digital euro and thus similar risks to individual rights as in the digital renminbi.
According to the Human Rights Foundation, CBDCs risk imposing sweeping financial surveillance, restriction of financial activity, frozen funds, seizure of funds, negative interest rates, tools for corruption, cyberattack risks and disruptions to financial stability.
On 2 October 2020, the ECB published a report outlining the introduction of a digital euro from the perspective of the Eurosystem. Since 2020, several projects have been launched in collaboration with the European Investment Bank (EIB) to test the issuance, control and transfer of central bank digital currency, as well as securities tokens and smart contracts on a blockchain.
After preliminary planning and presenting public consultation results in early 2021, the ECB launched the digital euro project in July 2021 to prepare for its potential introduction. No technical barriers were identified during the preliminary planning. The research, which is scheduled to run until autumn 2023, aims to shed light on the distribution to merchants and citizens, the impact on markets and the necessary European legislation. No preliminary decision has therefore been taken on the introduction of the digital euro.
In September 2022, the ECB announces a collaboration with five companies (Amazon, CaixaBank, Worldline, EPI and Nexi) to develop potential user interfaces for the digital euro.
Burkhard Balz, a member of the Bundesbank's Executive Board, sees the digital euro not least as a means of strengthening European sovereignty in payments. In his view, the digital euro could be designed to support programmable payments in a highly automated environment.
The first "Progress on the investigation phase of a digital euro" report was published by the ECB in September 2022.
Speaking at the conference "Towards a legislative framework enabling a digital euro for citizens and businesses" held in Brussels in early November 2022, Christine Lagarde, President of the European Central Bank, reiterated that the digital euro is not a stand-alone project limited to the area of payments. Rather, it is a cross-policy and truly European initiative that has the potential to have an impact on society as a whole.
In December 2022, the ECB published the second progress report on the investigation phase.
In January 2023, the ECB invited experts in the field of payments/finance to express their interest in contributing to the development of a set of rules for the digital euro.
At the end of May 2023, the ECB published the results of a market research and prototyping project. The market research had shown that there was a sufficiently large pool of European vendors capable of developing digital euro solutions. It had also shown that different types of architectural and technological design options were available to develop a technical solution for a digital euro. The prototyping project involved the integration of five user interfaces developed by different vendors for each use case (front-end prototypes) and a settlement system designed and developed by the Eurosystem (back-end prototype). Different design options were tested to determine whether they could be technically implemented and integrated into the Eurosystem's settlement system. The tests showed that it would be possible to integrate a digital euro smoothly into the existing payment landscape, while leaving room for the market to use innovative features and technologies in the dissemination of a digital euro. The results also confirmed that, in principle, a digital euro could function both online and offline using different technical concepts. The question remains whether an offline solution that meets the Eurosystem's requirements and achieves the necessary scale can be implemented in the short to medium term using existing technology.
On 18 October 2023 the ECB announced that a decision had been made to move forward with preparation phase, including a public pilot and aiming for a possible launch by 2025-2026.
In December 2024, the ECB) released its second progress report on the digital euro project, detailing advancements made between May and October 2024. During this period, the Rulebook Development Group (RDG) completed a review of the initial draft of the rulebook, addressing approximately 2,500 comments. Subsequently, seven new RDG workstreams were initiated to focus on critical areas such as minimum user experience standards, risk management, and implementation specifications. These efforts aim to refine the digital euro's framework, ensuring it meets the Eurosystem's objectives and aligns with legislative developments within the European Union.
On 31 January 2025, ECB President Cristine LaGarde and European Commission President Ursula von der Leyen published an op-ed in which they cited the digital euro project as part of an effort to keep Europe at the forefront of digital payment technologies.
The Governing Council will make a decision by the end of 2025 on whether to proceed to the next stage of planning for a digital euro.
The Verbraucherzentrale Bundesverband (Public German Consumer Protection Organisation) sees the digital euro as a public good and thus an opportunity to make digital payments more consumer-oriented.
The German Informatics Society (GI) sees the introduction of a digital euro and the simultaneous decline of cash as a threat to informational self-determination and privacy; there is a danger of the "Gläserner Mensch" (German metaphor for data protection, representing the complete "screening" of people and their behavior by a monitoring state, which is perceived as negative).
From the perspective of the German Banking Industry Committee, the global trend toward central bank digital currency is unmistakable and represents both an opportunity and a challenge. The planned introduction of a digital euro is seen as an important contribution to the digitalization of the economy and society and to securing Europe's sovereignty and competitiveness. The digital money ecosystem proposed in a policy paper is intended to go beyond digital cash and consists of three elements:
The Association of German Banks supports the introduction of a digital euro. In a position paper published in February 2023, the private banks emphasize the evolution of cash, their role in its issuance, its openness to innovation, and their desire to minimize the risks of its introduction. Among the risks, the private banks specifically mention those affecting their business (disintermediation, diminishing returns, weakening of their customer relationship) and that a weakening of their investment capabilities could lead to the failure of the digital euro.
The Bundesverband der Deutschen Volksbanken und Raiffeisenbanken (BdV) welcomes the ECB's plans for a digital euro, but criticizes that the needs of the economy for a future digital payment method have not yet been sufficiently taken into account.
In a position paper published at the end of September 2022, the Bundesverband der Deutschen Industrie (BDI, Federation of German Industries) warns that the needs of the industry must be taken into account when introducing a digital euro. The programmability of payments is a key demand.
For Paschal Donohoe, president of the Eurogroup, a body of finance ministers from euro member states, the digital euro project is about maintaining the link between citizens and central bank money: as central bank money, the digital euro would be convertible one-to-one into euro banknotes.
Unlike the industry, the Eurogroup does not want the digital euro to be equipped with additional functions.
The European Commission has submitted a legislative proposal for the introduction of a digital euro that should be made available as a legal tender not only to banks, but above all to the general public. Presented on 28 June 2023, this proposal outlines the fundamental requirements for its possible implementation. However, the final decision lies with EU member states and the European Parliament, who are currently —12 November 2024— negotiating this proposal. If the legislation is approved, the European Central Bank (ECB) will further develop the technical and operational aspects, aiming to create a secure and reliable digital euro, available alongside cash and traditional bank payment accounts.
Additionally, the proposal aims to protect user privacy, similar to cash, without extra oversight of individual transactions by the governments. For security purposes, there are considerations for limits on the amount individuals can hold in digital euros. All of this forms part of a preparatory phase that may take several years, with an expected implementation date from 2028 if the legislation is approved.