Digital Euro
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From Aurapedia, The Finance Encyclopedia
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Digital Euro
The Digital Euro is an initiative led by the European Central Bank (ECB), launched in July 2021, aimed at exploring the introduction of a central bank digital currency (CBDC) within the Eurozone. Designed to be a fast, secure, and reliable electronic payment method, the digital euro would complement existing forms of the euro—cash and bank deposits—while ensuring continued access to central bank money in an increasingly digital economy.
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This digital currency would be issued by the European System of Central Banks, reinforcing the ECB’s role in preserving monetary stability and supporting innovation in the payments landscape.
Following an extensive two-year investigation phase, the ECB officially entered the preparation phase on 18 October 2023. This stage involves critical steps such as finalizing the regulatory framework, drafting the operational rulebook, and selecting technology partners to develop the necessary infrastructure and platform.
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While a final decision to issue the digital euro is still pending, these efforts mark a significant move toward a future where central bank money is fully integrated into the digital economy—accessible to all, secure by design, and aligned with Europe’s core values of privacy, financial inclusion, and innovation.
Arguments & Motivation
The digital euro represents more than just a technological evolution of currency—it is a strategic move by the European Central Bank (ECB) to safeguard and future-proof the Eurozone’s monetary and financial framework in a rapidly digitalizing world.
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According to the ECB, several compelling arguments and motivations support the introduction of a central bank digital currency (CBDC) like the digital euro:
1. Preserving Central Bank Money as a Monetary Anchor
At the core of the European financial system lies trust in central bank money. As private digital payment solutions proliferate, the ECB aims to ensure that the euro—as public money—remains the fundamental monetary anchor. A digital euro would secure the continued relevance and stability of central bank money within a modern payment ecosystem.
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2. Ensuring Free Digital Access to Legal Tender
The digital euro would offer free, universal digital access to legal tender for citizens and businesses across the Eurozone. By doing so, it strengthens the principle of monetary inclusion, ensuring everyone has access to central bank money—not only as physical cash but in digital form.
3. Expanding Payment Options and Enhancing Financial Inclusion
By introducing a digital euro alongside traditional cash and commercial bank deposits, the ECB seeks to broaden the available payment options. This alternative form of money could support greater competition and resilience in the payments market, while promoting financial inclusion for unbanked or underbanked populations.
4. Building Trust Through High-Level Privacy Standards
Unlike many commercial digital platforms that monetize user data, the ECB emphasizes that a digital euro would be designed with robust privacy protections. It aims to mimic the confidentiality of cash while meeting necessary compliance and security standards, thereby building public trust in digital central bank money.
5. Fostering Innovation in Retail Payments
The digital euro is envisioned as a catalyst for technological innovation in the financial sector. By providing a public infrastructure for digital payments, it would stimulate innovation, enhance the efficiency of retail transactions, and support the development of Europe’s digital financial sovereignty.
6. Protecting Monetary Sovereignty from Foreign Digital Currencies
The rise of foreign digital currencies and global stablecoins presents potential risks to the financial stability and sovereignty of the Eurozone. A digital euro would act as a strategic counterbalance, limiting dependency on external platforms and preserving European control over its monetary system.
7. Enabling Simpler, Fairer Wealth Redistribution and Social Aid
With a programmable and direct distribution model, the digital euro could streamline the delivery of social benefits and financial aid. It would allow governments to efficiently and transparently channel support to citizens, reducing administrative burdens and leakage.
8. Responding to the Declining Use of Cash
As the use of physical cash continues to decline across many parts of Europe, the ECB sees the digital euro as a necessary evolution to ensure that central bank money remains widely usable in everyday transactions. It provides a digital complement to cash rather than a replacement, ensuring no one is left behind in the digital age.
Conclusion
The ECB’s rationale for a digital euro is both defensive and forward-looking—protecting existing monetary stability while laying the foundation for a more inclusive, innovative, and sovereign European financial system. As the Eurozone adapts to global changes in technology and finance, the digital euro stands as a symbol of European preparedness, resilience, and trust in public money.
Risks
While the digital euro is presented as a forward-looking solution to modernize the monetary system and secure the Eurozone’s financial future, it is not without criticism and risks. Experts, economists, policymakers, and civil society groups have raised several concerns regarding its design, implementation, and broader implications.
The following outlines the primary areas of concern associated with the introduction of a central bank digital currency (CBDC) in Europe:
1. Threat to Commercial Banks and Financial Intermediaries
One of the most debated risks is the potential disintermediation of commercial banks. If individuals and businesses decide to move significant portions of their deposits from commercial banks into digital euro wallets, it could lead to:
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Reduced bank liquidity
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Increased competition for deposits
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Higher borrowing costs for businesses and households
In extreme scenarios, this could also trigger bank runs during crises, as people rush to transfer funds into the perceived safety of central bank digital currency.
2. Erosion of Financial Privacy
Despite the ECB’s stated commitment to strong privacy protections, there are concerns that the digital euro may erode the anonymity associated with cash transactions. Unlike physical cash, all digital transactions inherently create data trails.
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Critics argue this could open the door to:
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Mass surveillance by governments or third parties
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Data misuse under weak regulatory oversight
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A chilling effect on personal spending freedom
While the ECB aims to strike a balance between privacy and anti-money laundering requirements, public skepticism remains.
3. Cybersecurity and Technological Vulnerabilities
As a purely digital infrastructure, the digital euro system would be a high-value target for cyberattacks. Risks include:
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Hacking of wallets or infrastructure
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System-wide outages
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Fraud or digital counterfeiting
A breach could undermine trust in the Eurozone’s entire financial system. The ECB will need to develop state-of-the-art security protocols to ensure resilience and public confidence.
4. Potential for Programmable Money Abuse
While "programmable money" offers innovative potential—such as conditional payments or smart contracts—it also raises ethical and governance concerns. Critics warn that programmable digital currency could be misused to:
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Control spending behavior (e.g., limiting purchases of certain goods)
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Expire unspent funds
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Introduce political or social conditions for access
Such features, if not transparently governed, may be seen as infringing on personal freedoms and economic autonomy.
5. Marginalization of Cash and Vulnerable Populations
Although the ECB insists the digital euro will complement, not replace, cash, there is growing concern that it may accelerate the decline of physical currency. This could:
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Disadvantage elderly, rural, or unbanked individuals
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Widen the digital divide in society
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Exclude those without smartphones, stable internet, or digital literacy
Critics argue that digital-only systems risk creating two-tiered access to money and payments.
6. Unclear Impact on Monetary Policy and Inflation
A widely adopted digital euro could have unpredictable effects on monetary policy. For instance:
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If too much capital shifts into CBDC, it may affect interest rate transmission mechanisms.
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Programmability could allow for negative interest rates on retail users, leading to public resistance.
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The speed and scale of money flows could make policy implementation more volatile.
These effects remain theoretical but warrant careful modeling and governance before rollout.
7. Geopolitical and Strategic Risks
In the context of a global CBDC race, critics point out the risk of weaponizing digital currency—either by the Eurozone or by foreign actors. If not globally interoperable, the digital euro could contribute to:
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Fragmentation of international finance
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Increased currency competition or capital controls
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Vulnerabilities to foreign sanctions or financial warfare
Europe must ensure that the digital euro enhances global cooperation, not conflict.
Conclusion
The digital euro promises innovation, efficiency, and sovereignty—but it must also confront real risks and criticisms that could shape its success or failure. The ECB will need to navigate a delicate balance between embracing digital transformation and preserving economic stability, individual freedoms, and public trust.
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Robust public dialogue, transparent development, and gradual, well-regulated implementation will be essential to ensure that the digital euro serves all Europeans, not just the financial elite or the digitally empowered.
Preparation
The journey toward a digital euro—a central bank digital currency (CBDC) for the Eurozone—has unfolded through a carefully structured, multi-phase process. Spearheaded by the European Central Bank (ECB) and supported by the Eurosystem, the project is rooted in strategic foresight, technological research, public engagement, and legislative alignment. The aim: to ensure Europe remains at the forefront of digital finance and monetary sovereignty in an increasingly cashless, globalized economy.
2020: Laying the Foundation
The groundwork for the digital euro was set in October 2020, when the ECB published its first comprehensive report outlining the rationale, opportunities, and challenges associated with introducing a digital euro. The document framed the initiative from the Eurosystem’s perspective, marking the beginning of formal exploration into a European CBDC.
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Shortly thereafter, collaborative projects with the European Investment Bank (EIB) were launched. These pilots focused on testing:
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The issuance, control, and transfer of CBDC
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Securities tokens
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Smart contracts based on blockchain and distributed ledger technologies
2021: Launching the Digital Euro Project
After presenting the results of a public consultation in early 2021 and identifying no major technical barriers, the ECB formally launched the digital euro project in July 2021. The initial objective was to investigate technical feasibility, assess distribution mechanisms, and analyze the impact on markets and legislation.
Key goals of the investigation phase (2021–2023) included:
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Designing how citizens and merchants would access and use a digital euro
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Evaluating technological infrastructure needs
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Ensuring compatibility with existing European financial frameworks
2022: Testing, Partnerships, and Public Messaging
In September 2022, the ECB announced a partnership with five major companies—Amazon, CaixaBank, Worldline, EPI, and Nexi—to prototype user interfaces for the digital euro. This collaboration aimed to explore real-world usability and user experience considerations.
Key developments included:
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The publication of the first “Progress Report” in September 2022
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Strategic statements by ECB and Bundesbank officials highlighting the digital euro’s role in automated payments and European financial sovereignty
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ECB President Christine Lagarde’s speech in Brussels, where she emphasized that the project transcended the payments sector, calling it a cross-policy initiative with implications for society at large
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The release of a second progress report in December 2022
2023: Technical Testing and Market Readiness
In January 2023, the ECB invited experts from the finance and payments industries to contribute to the development of the Digital Euro Rulebook, marking the start of structured policy drafting.
By May 2023, the ECB concluded a comprehensive market research and prototyping phase, which revealed:
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A wide pool of capable European tech providers
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Multiple viable architectural and technological options
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Successful integration of front-end user interfaces with a Eurosystem-developed back-end settlement system
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Validation that a digital euro could operate both online and offline, although offline scalability remains a technological challenge in the short term
On 18 October 2023, the ECB announced the transition from investigation to the preparation phase, including plans for a controlled pilot rollout and an indicative launch window of 2025–2026.
2024: Advancing Rulemaking and Policy Frameworks
In December 2024, the ECB published its second progress report detailing developments from May to October. Key milestones included:
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The Rulebook Development Group (RDG) completing its review of the initial draft rulebook, resolving 2,500 public and internal comments
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Launch of seven new RDG workstreams focusing on:
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Minimum user experience standards
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Risk and fraud management
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Technical and implementation specifications
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These efforts ensured that the project advanced in alignment with European Union legislative frameworks while addressing the operational and governance needs of the digital euro ecosystem.
2025: Political Momentum and Strategic Commitment
On 31 January 2025, ECB President Christine Lagarde and European Commission President Ursula von der Leyen jointly published an op-ed affirming the strategic importance of the digital euro. They emphasized it as a pillar of Europe’s digital competitiveness, financial sovereignty, and global leadership in the next era of payments.
Their message underlined a core belief: that public money must remain relevant and accessible in a digital future, and that Europe must not rely on foreign private solutions to handle its citizens’ most essential economic interactions.
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Looking Ahead
As of mid-2025, the digital euro remains under development, with the preparation phase actively shaping its final form. The ECB continues to consult with stakeholders, test infrastructure, and coordinate with European lawmakers to finalize the legal and operational framework.
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Whether ultimately launched or not, the digital euro initiative has already become a landmark project in Europe’s monetary history, representing a bold step toward a sovereign, secure, and inclusive digital financial future.
Introduction
As the European Central Bank (ECB) continues its preparations for the potential launch of a digital euro, the initiative has sparked diverse reactions from stakeholders across the public, financial, industrial, and governmental sectors. The project—positioned at the intersection of technology, policy, and society—is seen by some as a critical innovation, while others raise concerns around privacy, financial stability, and strategic implications.
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The Governing Council of the ECB is expected to make a final decision on whether to proceed to the next stage of planning by the end of 2025. Until then, national authorities, industry bodies, and civil organizations are actively shaping the dialogue.
Consumer Advocates: A Public Good for Citizens
The Verbraucherzentrale Bundesverband (German Consumer Protection Organization) supports the digital euro, viewing it as a public good. From a consumer standpoint, it represents an opportunity to make digital payments more equitable, accessible, and user-oriented. The organization emphasizes:
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Free access to central bank money in digital form
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Improved consumer protections
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Less dependency on profit-driven private payment providers
Privacy Concerns: The “Gläserner Mensch” Debate
On the other side of the debate, the German Informatics Society (GI) expresses deep concern over the potential erosion of privacy. They warn that the digital euro, if not properly designed, could contribute to the creation of the “Gläserner Mensch” (literally, "glass human")—a dystopian concept in German data protection discourse describing complete transparency of individuals to state or corporate surveillance.
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Key concerns include:
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Intrusive transaction monitoring
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Loss of financial anonymity
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Potential misuse of behavioral data
The GI insists that informational self-determination must remain a cornerstone of any digital currency framework.
Banking Sector: Balancing Innovation with Risk
German Banking Industry Committee (GBIC)
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The GBIC recognizes the global momentum toward CBDCs and acknowledges the digital euro as a strategic step forward. However, they advocate for a multi-layered digital money ecosystem, which includes:
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Retail CBDC – for individual citizens and daily transactions
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Wholesale CBDC – for financial institutions and interbank settlements
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Bank Money Tokens – programmable instruments for industrial and commercial use
Their vision extends beyond the digital euro as mere "digital cash" and promotes coexistence between public and private digital currencies.
Association of German Banks (BdB)
In a February 2023 position paper, private banks supported the digital euro in principle but outlined several operational and existential risks:
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Disintermediation of traditional banks
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Weakening of customer relationships
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Reduced investment capability
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Profitability pressure due to potential deposit shifts
They call for a framework that preserves bank viability while enabling innovation.
Bundesverband der Deutschen Volksbanken und Raiffeisenbanken (BVR)
While the BVR welcomes the ECB's vision, it criticizes the lack of specific attention to business and industry needs in current planning. Their call is clear: the digital euro must be developed not just for consumers, but also to serve practical use cases in the real economy.
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Industrial Sector: Programmability and Utility
The Federation of German Industries (BDI) released a position paper in September 2022 warning that the digital euro must be designed with industrial application in mind. Their primary demand: programmability. For the industrial sector, features like automated payments, smart contract integration, and workflow-specific settlement options are essential for the currency to add tangible value to Europe’s production economy.
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Eurogroup: Simplicity and Monetary Continuity
Paschal Donohoe, President of the Eurogroup—a collective of finance ministers from euro area member states—has offered a more conservative view. For the Eurogroup, the digital euro is chiefly about maintaining the connection between citizens and central bank money in a digital age.
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One-to-one convertibility with euro banknotes
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Preserving the core functions of money
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Avoiding complex add-ons or programmable features
This reflects a preference for simplicity, stability, and monetary continuity, in contrast to the more ambitious designs proposed by industry.
European Commission: Legal Framework and Public Accessibility
The European Commission plays a critical role in the legislative groundwork for the digital euro. On 28 June 2023, it submitted a legislative proposal calling for the digital euro to be:
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Recognized as legal tender
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Accessible to the general public, not just financial institutions
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Free to use for basic services
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Fully compliant with privacy regulations, without additional surveillance
As of November 2024, the proposal remains under negotiation by EU member states and the European Parliament. If passed, the legislation would empower the ECB to proceed with full-scale development, with an expected rollout timeline beginning in or after 2028.
The proposal also addresses:
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Limits on individual holdings (to mitigate bank disintermediation)
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Privacy-by-design architecture
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Offline functionality, especially in underserved areas
Conclusion: A Continent in Conversation
The digital euro is not just a technical project—it is a pan-European dialogue about the future of money, trust, and digital sovereignty. It is seen variously as:
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A public utility for inclusive finance
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A tool for sovereignty in the face of global tech dominance
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A threat to privacy, or a catalyst for innovation
The outcome of this debate will not only shape the euro's evolution but will also signal how Europe chooses to govern digital transformation—with a balance of freedom, fairness, and forward thinking.
FAQ
Q1. Why does Europe need the digital euro?
Digitalisation is transforming how we pay, with a steady decline in cash usage and a rise in digital transactions. The digital euro would be an electronic form of central bank money, offering a secure and universally accepted means of digital payment across the euro area. It complements existing physical cash and ensures access to public money in the digital era. It also supports Europe's monetary sovereignty, innovation in payments, and resilience against cyber threats and systemic disruptions.
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Q2. How could the digital euro contribute to Europe’s strategic autonomy?
The digital euro would provide a pan-European payment solution, reducing reliance on non-European private providers and enhancing competitiveness within the EU's payment ecosystem. It supports the creation of a resilient and innovative European financial infrastructure, ensuring control over payment systems remains in European hands.
Q3. Why would people want to use the digital euro?
The digital euro would be accepted everywhere in the euro area, both online and offline, offering instant, free, and secure payments. It ensures user privacy, does not allow the ECB to track payments, and accommodates users with disabilities or limited digital access. Legislation also mandates its universal acceptance and distribution by supervised intermediaries.
Q4. Would the digital euro replace cash?
No. The digital euro is intended to complement, not replace, cash. It offers an additional payment option tailored to the digital economy.
Q5. What value would the digital euro offer merchants?
Merchants would benefit from a pan-European, cost-efficient payment system with instant settlement and reduced reliance on fragmented national solutions or costly intermediaries. This could enhance customer experience and increase conversion rates, especially for online purchases.
Q6. What value would the digital euro offer intermediaries?
Banks and other intermediaries would distribute the digital euro, gaining new business opportunities across the euro area. The system would allow value-added services and incentivize participation with compensation models comparable to existing payment services.
Q7. How would the digital euro work?
Users would open a digital euro wallet via a bank or post office, fund it via a bank account or cash, and make instant payments. Online and offline functionalities ensure usability even without internet access. Offline transactions would offer privacy comparable to cash.
Q8. Who would be able to use the digital euro?
It would be available to residents, businesses, and public entities in the euro area. Visitors and those with EU connections may also gain access. Non-euro area users may participate through agreements with EU institutions.
Q9. How private would the digital euro be?
Privacy is a priority. Offline payments would remain private between payer and payee. Online payments ensure the ECB cannot trace individual users. High standards of data protection and cybersecurity would apply.
Q10. How would the ECB ensure that the digital euro is inclusive?
The digital euro would be free for basic use, accessible via app or card, and supported by public institutions. Special provisions would ensure access for people with disabilities, limited digital skills, or no bank account.
Q11. How would the ECB ensure that digital euro payments work in the same way throughout the euro area?
A single rulebook is being developed by the Eurosystem to standardise payment processes across all participating countries.
Q12. Would the digital euro be an alternative currency within the Eurosystem?
No. It is simply a digital version of the euro, convertible 1:1 with cash and existing euro bank balances.
Q13. What would be the link between instant payments and the digital euro?
All digital euro payments would be instant, improving efficiency and reducing reliance on non-European private systems.
Q14. Would the digital euro be based on blockchain?
The ECB is exploring both centralised and decentralised technologies, including blockchain, but no final decision has been made.
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Q15. Where does the digital euro project currently stand?
The preparation phase began on 1 November 2023 and runs until the end of 2025. The ECB will decide on issuance only after relevant legislation is adopted.
Q16. Who is involved in the digital euro project?
The Eurosystem, national central banks, the European Commission, private sector experts, civil society, and EU institutions are involved in its development and stakeholder engagement.
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Q17. How are European legislators involved?
The European Commission's draft legislation ensures a digital euro is secure, widely accepted, and complements existing payment systems. The ECB supports this process with technical input.
Q18. How is the digital euro rulebook being developed?
A Rulebook Development Group with stakeholders from the public and private sectors is drafting the rulebook based on ECB design choices.
Q19. Would the digital euro be programmable money?
No. The digital euro would not limit how or where it can be used. However, users may opt into automated payment features like scheduled transfers.
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Q20. Would people have to pay to use the digital euro?
Basic use would be free for consumers. Banks may offer premium services at a cost.
Q21. Would intermediaries be compensated for distributing the digital euro?
Yes. A fair compensation model is planned to cover their costs and provide economic incentives. Merchant pricing would be capped.
Q22. Would the digital euro pose a threat to financial stability?
No. Safeguards such as holding limits, no interest on balances, and bank account integration are designed to prevent disintermediation and preserve financial stability.
Q23. Would the digital euro make Europe more vulnerable to cyberattacks?
Cybersecurity is a central design priority. The digital euro would incorporate the latest technologies to protect against cyber threats.
Q24. How would the digital euro differ from stablecoins and crypto-assets?
The digital euro is risk-free central bank money. Unlike private digital assets, it is backed by the ECB, maintains its value, ensures privacy, and adheres to public interest principles.
Q25. How much would the digital euro cost the Eurosystem?
The cost depends on final design choices. The ECB aims to reuse existing infrastructure and keep costs low. It is expected that seigniorage revenue will offset costs, and the system will be free for basic use and cost-efficient for merchants.