5 minWill the digital euro be the currency of the 21st Century?
As technology continues to upend finance and people increasingly shift from cash to digital payments, the European Central Bank has been working on introducing a digital currency available to everyone. What would it be? When would it come into circulation? Would it replace cash? Let’s take a closer look at this new means of payment.
The European Central Bank (ECB) is responsible for euro area monetary policy and plans to introduce a digital euro alongside other forms of money.In July 2021, It launched the investigation phase of the digital euro project to address the design and distribution of the proposed digital currency1.
Then in October 2023, the project moved to the preparation phase, which is due to end in the third quarter of 2025. Under current plans, the first digital euro should be in circulation in 2027 or 2028.
Why issue a digital euro?
“Public money is not currently available to people in digital form. Making digital money available to the general public is the next step for the single currency”, according to the ECB.
While cash is still the leading form of payment for small purchases in shops and for transactions between individuals, it is declining. In 2019, cash purchases accounted for 72% of transactions, but only 59% in 2022. “At the same time, growth in electronic payments gathered pace during the pandemic. Most people now prefer electronic payment methods,” reports the Banque de France.2
The digital euro would be issued by the ECB and national central banks in the euro area. It would be available free of charge to everyone in the euro area and accepted everywhere for all types of payment – in stores, online and from person to person. The electronic equivalent of cash, it would complement banknotes and coins to give people another way to pay. The introduction date has yet to be decided.
It would be available free of charge to everyone in the euro area and accepted everywhere for all types of payment – in stores, online and from person to person.
What would be the main features of the European e-money?
Cryptocurrencies, or “crypto-assets” as they are also known, are virtual digital assets based on blockchain technology. Cryptocurrency deposits and trades are recorded in a decentralised computerised ledger according to an encrypted protocol. Unlike traditional currencies, crypto-assets bypass traditional financial institutions and do not need a trusted third party, such as a central bank, to verify transactions and prevent fraud. Their value depends solely on supply and demand. Of the more than 1,300 crypto-assets in circulation around the world today, bitcoin is the most well-known. But the digital euro would not be a crypto-asset. It would be a safe and secure payment method. Since crypto-assets are not guaranteed or managed by a central institution, they are risky and volatile. There is no guarantee that you will be able to convert your crypto-assets into cash when you need to.”
One digital euro would always be worth exactly the same as a €1 coin
Guaranteed value: “A euro would always be a euro. One digital euro would always be worth exactly the same as a €1 coin”, the ECB has confirmed. The digital euro would be central bank currency. In other words, the European Central Bank would guarantee the new currency, just like it does the euro in your pocket and bank account.
Payments could be made securely, both online and offline, keeping private data safe and protected. For offline transactions, the digital euro would offer a privacy level similar to cash payments.
How would you use it?
The first step would be to create a digital euro wallet through either a bank or a designated public entity, such as a post office. A physical card would be provided to those who do not have access to a bank account or digital devices to make payments with their digital euro.
You would then be able to transfer money to your digital euro wallet from a linked bank account or by depositing cash, up to a set maximum amount. The ECB is considering a personal digital euro limit of €3,000..
And you could use your phone or watch for everyday purchases, monthly bills or for payments from one wallet to another. Only the payer and the beneficiary would have access to the personal information linked to these transactions. With a digital euro, payments could be made either online or offline (to solve the problem of limited connectivity) using cards similar to authorised prepayment cards for minors and young people, which can be loaded with digital euro in advance. The ECB is currently looking into the practical ins and outs and considering a digital euro app that everyone could download and use.
You would be able to pay in digital euro free of charge anywhere in the euro area. The digital euro would not replace cash or payment cards; it would sit alongside these.
“The digital euro would be introduced first for residents and citizens of the euro area,” explains Erick Lacourrège, Director General Cash and Retail Payments at the Banque de France. Euro area businesses and government bodies could also open digital euro accounts, but with no upper limit on the amount. The next stage could see the digital euro opened up to individuals and businesses in the European Economic Area (EEA), in neighbouring micro-states, such as Andorra, Monaco, Saint Marino and the Vatican, and to tourists3. “But these would be temporary holdings”, stresses Mr Lacourrège. “We do not want to facilitate permanent holdings and the ability to use the digital currency from outside the EU.”
Whether digital or in cash, the currency remains a universal benchmark as an instrument of account and for trade.
The digital euro would not replace cash or payment cards; it would sit alongside these.
What would it mean for you in your day-to-day life?
Safe, secure and private, the digital euro would be an intangible means of payment backed by the ECB. It would be available free of charge to everyone and accepted everywhere in the euro area. But would it change your life?
Above all, the digital euro would promote financial inclusion. “To ensure that everyone, including people with disabilities, those with functional limitations, older people and the less tech-savvy can pay using their digital euro, public bodies, such as the post office, will be designated in each country in the euro area,” according to the ECB. “These institutions would offer support and access to digital euro services free of charge to those at risk of digital financial exclusion”.
Free access to basic digital euro services would also be available to the unbanked.
The digital euro would promote financial inclusion.
“Particular attention will be paid to the inclusion of vulnerable groups, such as individuals with no fixed abode, asylum seekers or beneficiaries of international protection,” adds the ECB. “The design of a digital euro would accommodate all needs and no one would be left behind”4 » .
Find out more
https://www.ecb.europa.eu/euro/digital_euro/faqs/
https://www.ecb.europa.eu/euro/digital_euro
https://www.consilium.europa.eu/
https://www.banque-france.fr
https://www.europe-consommateurs.eu
https://www.forbes.fr
https://www.banque-france.fr
1 https://www.consilium.europa.eu/