Digitalisation and new technologies are increasingly shaping people’s lives and how people pay for goods and services right across the EU. The European Central Bank is examining how a potential digital euro would operate and function for people and firms across the EU. This Just the Facts looks at what the digital euro is, how it will work and the current timeline from the European Central Bank on its possible introduction.
What is the digital Euro?
In an increasingly digital economy, the European Central Bank (ECB) has begun studying the possibility of introducing a digital euro; a digital form of central bank money available to people and businesses. It would meet the need for secure, efficient digital payments with broad acceptance by leveraging the backing of the central bank.
The digital euro would exist alongside cash and bank deposits, providing a safe and efficient digital payment option. The digital euro is intended to complement, not replace, existing forms of money like cash and commercial bank deposits. The ECB has clearly stated the “digital euro would exist alongside cash in response to people’s growing preference to pay digitally, in a fast and secure way” and interact with current payment options to provide additional choices.
Euro banknotes and coins will continue being issued for as long as the public demands them. The digital euro would not make other forms of the euro obsolete. It aims to expand, not limit, options for using the currency. The ECB will ensure convertibility between the digital euro and other forms of money at par.
Further, the ECB has stated that “a digital euro would not be a cryptocurrency, since it would be backed by a central bank. Central banks have a mandate to maintain the value of money, regardless of whether it is physical or digital. Crypto-assets are not backed or managed by any central institution. You have no guarantee that you will be able to exchange them for cash when you need to.”
The ECB would control the digital euro supply, but its distribution could involve the private sector through regulated financial intermediaries like banks and payment providers. Payments through the digital euro across Europe could function similarly to current card or mobile app payments, supporting both online commerce and offline transactions across Europe, and possibly beyond.
Key objectives of a digital euro include providing citizens with strong privacy and security protections, promoting innovation and efficiency in European retail payments, compliance with anti-money laundering regulations, and supporting Europe’s strategic autonomy in payments.
Why have a digital euro?
The ECB’s investigation into a digital euro focus has been to meet the needs of Europe’s increasingly digital economy. The ECB noted that, as consumers shift away from cash, access to central bank money risks becoming limited to banknotes. A digital euro would provide citizens and firms continued access to central bank money in digital form. This would ensure the public retains a secure digital payment instrument amid declining cash use.
A key driver is preserving the EU’s monetary sovereignty as payments digitalise. Currently, most electronic payments are controlled by non-EU entities, such as Mastercard (set up in 1966), PayPal (1998), Visa (1958). A digital euro would aim to reduce dependence on foreign payment networks and bolster Europe’s autonomy.
Writing for the Irish Examiner Commissioner Mairead McGuinness outlined that the ECB will determine if a digital euro should be introduced, but the European Commission is responsible for drafting any legislation needed to support the initiative. She stated that “this process allows democratic control by the European Parliament and EU Member States over the project’s development”.
A digital euro would be a new electronic form of euro cash with legal tender status for payments, like physical banknotes. For consumers already using mobile wallet apps to make digital payments, a digital euro would offer another payment option using digital currency issued by the central bank.
Moreover, a digital euro seeks to promote continued innovation in European payments. Supervised intermediaries could develop new user-facing payment services by creating a digital platform for the Euro. This would support efficiency and competitiveness in retail payments across Europe, while also trying to support and enhance financial inclusion and access to digital payments for all citizens. The digital Euro could help reduce barriers for consumers currently unable or unwilling to use private payment solutions.
Digital Euro Timeline
In October 2021, the Eurosystem began a two-year investigation phase to explore the technical and policy options that could form the basis of a digital euro design. This investigation considers how digital euro could be distributed and used by citizens and businesses and the potential impact it may have on the European economy and society. The investigation phase will conclude by late 2023 with a report advising whether to proceed. If the decision is made to go ahead, the preparation phase would follow to prepare for a digital euro. The key tentative timeline is as follows:
- October 2023 (expected) – The investigation phase will conclude with a report advising whether to move forward with developing a digital euro and presenting an implementation plan if recommended.
- 2023 (or early 2024) – Decision point by the Governing Council on whether to proceed with a digital euro based on the investigation report.
- If the decision is yes, the realisation phase would follow the preparation phase of the digital euro based on the investigation plan.
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