What is a digital euro?

If the EU Commission has its way, paying with coins and bills in the euro zone will soon be a thing of the past. The plan is to introduce the digital euro as legal tender. The EU Commission wants to make a final decision on this step in October 2023.

What exactly is a digital euro?

A digital euro is an electronic means of payment issued and controlled by the European Central Bank (ECB). It is intended to be a supplement and not an alternative to cash and to offer people in the euro area another way to pay safely, quickly and easily. According to the plans, a digital euro would be worth as much as a euro in coins or notes and would be considered legal tender.

Reasons for introducing the digital euro

The ECB has given several reasons for the possible introduction of a digital euro. First, it wants to ensure that people in the euro area continue to have access to a secure and reliable electronic means of payment issued by the central bank. This is particularly important at a time when the use of cash is decreasing and the demand for digital payment options is increasing. On the other hand, the ECB wants to strengthen the role of the euro as a global currency and promote competition and innovation in European payments. It also wants to avoid digital currencies jeopardizing the financial stability and monetary sovereignty of the euro area.

Project planning phase about to be completed

The digital euro is not yet a finished product, but a project launched by the ECB in October 2021 to prepare for the possible introduction of the means of payment. The investigation phase is nearing completion after two years. A decision on the introduction will be made in October 2023. During this time, the ECB explored various aspects of the digital euro, such as its design, technical feasibility, legal framework, impact on the economy and society, and user needs.

Design principles: The ECB's ideas

How a digital euro would look and function has not yet been determined. However, the ECB has defined the following design principles that this means of payment should meet:

• It must be easily accessible and user-friendly so that everyone can use it, regardless of age, income or technical skills.
• It must be robust and secure so that it is protected against cyber attacks, fraud or malfunctions.
• It must be efficient and cost-effective so that it enables fast and inexpensive transactions.
• It must be legally compliant so that it complies with applicable laws and regulations.
• It must be privacy-friendly so that it ensures a high level of privacy for users.

A digital euro could be spent and used in various ways. One possibility would be for users to have a digital wallet on their smartphone in which they can store and manage digital euros. Another possibility would be a card or token that can be used to transfer or receive the digital euro.

Digital euro criticism

Criticism of the introduction of the digital euro comes from various sides. The German Banking Industry (DK) warns that the digital euro could lead to a migration of deposits from commercial banks to the European Central Bank (ECB). Banks could then be restricted in their financing options. The DK also fears that the digital euro could contribute to increased volatility and vulnerability of financial markets. The European Data Protection Supervisor (EDPS) warns that the digital euro could lead to surveillance and tracking of all users' transactions. Further considerations lead in the direction that the transactions of EU citizens can be very easily combined with a social scoring system based on the Chinese model.

The ECB has already announced that the digital euro could be introduced in 2026 at the earliest. Financial experts do not see introduction before 2028.