The next step towards a digital euro as a supplement to cash: A preparatory phase initially scheduled to last two years will begin on November 1st, as the Council of the European Central Bank (ECB) decided on Wednesday. Once this phase has been completed, the euro currency authorities want to decide whether to pave the way for the introduction of a digital variant of the European common currency. This requires a legal basis for a digital euro at EU level.
In the phase now beginning, “the rules for the digital euro will be finalized and providers will be selected who could develop a platform and the infrastructure for a digital euro,” said the central bank in Frankfurt.
Preparations for a digital version of the European common currency have been underway for some time. In the past two years, the euro’s monetary authorities have focused on technology and data protection. At the end of June 2023, the EU Commission presented proposals for a legal framework: The digital euro should become legal tender, but should not replace banknotes and coins. At the same time, the authorities in Brussels want to ensure by law that cash continues to be widely accepted and readily available in the European Union.
Introduction of a digital euro only in a few years
According to Bundesbank board member Burkhard Balz, who is involved in the project, it could take at least four to five years before a digital euro is ready for the market.
Banks could obtain the digital euro from central banks like cash. Consumers would receive it credited to a digital wallet, a so-called wallet, and would be able to pay in a matter of seconds around the clock, for example using their smartphone – even if they do not have an internet connection.
Stand up to US competition in the payments market
With a digital euro, the euro central banks want to counter private providers, especially from the USA, who currently dominate the market for digital payments in Europe, with a European digital payment offer.
“When it comes to digital payments, people need to become more independent of the commercial interests of a handful of international corporations,” argued the board member of the Federal Association of Consumer Organizations (vzbv), Ramona Pop. “The digital euro can deliver this and take payment transactions to a new level.”
The digital association Bitkom also welcomed the ECB’s efforts, as its chief executive Bernhard Rohleder explained: “A digital euro can sustainably strengthen Europe’s competitiveness and sovereignty.”
According to Nils Beier, Managing Director of Financial Services at Accenture, a digital euro for consumers would be “a simple, user-friendly means of payment accepted across the Eurozone for everyday payments and providing direct and digital access to the safest form of cash – “central bank money”.
As with cash, the ECB would guarantee the stability of a digital version of the European common currency. “We see a digital euro as a digital form of cash with which all digital payments can be made free of charge and which meets the highest data protection standards,” explained ECB President Christine Lagarde.
Concerns about data protection
The German Banking Industry (DK), as the umbrella organization of the five major banking associations in Germany, sees the work on the digital euro as fundamentally positive. However, Tanja Müller-Ziegler, board member of the Federal Association of German Volksbanks and Raiffeisenbanks (BVR), warned on behalf of the DK: “Negative effects on the economy and society must be avoided and the digital euro must be widely accepted by the population.” In addition, a legally anchored holding limit in the lower three-digit euro range must apply to the digital euro in order to prevent risks to financial stability, demanded the DK.
In view of concerns about data protection, Bundesbank board member Balz assured in an interview with the “Münchner Merkur” (Wednesday) that the Eurosystem would not have access to individual user data: “Unlike some platform providers on the Internet, we have no commercial interest in personal payment data anyway on the transfer of such data to third parties. The digital euro will offer users the highest level of data protection.”
