The digital euro is intended to make everyday payments in Europe simpler and more secure, but its significance already goes far beyond convenience for shoppers. For the Eurozone, it addresses several tasks at once:
- simplify everyday payments;
- increase the security of transactions;
- strengthen the Eurozone’s currency sovereignty;
- reduce dependence on external payment systems.
The idea of digital money has long been presented as a future revolution in paying for goods and services. In practice, however, most people still pay in familiar ways: using cash, a bank card, or apps linked to their account. Cryptocurrencies have not become a mainstream payment tool due to sharp price fluctuations and their complexity for the average consumer.
The European Central Bank proposes a different approach. This is not about a speculative asset, but a central bank digital currency: one digital euro should always equal one regular euro. Such a currency will be used for shopping in stores, online transactions, and transfers between individuals.
Currency Sovereignty Becomes a Security Issue
The European Union increasingly feels its dependence on external payment infrastructure. Card networks, digital wallets, major payment apps, and each large payment service provider form a system in which European transactions partly rely on solutions outside Europe.
Bas van Donselaar, managing partner of a payments consulting firm, warns: if there is no digital euro, transactions in foreign payment systems, especially those denominated in dollars, may reduce the effectiveness of the ECB’s monetary policy. The more payments move online and the more prominent the role of foreign digital currencies, the more important it is for the Central Bank to maintain control over the monetary base and the stability of the euro.
In this sense, the project resembles not only a technological upgrade but also a response to a new geopolitical reality. If trade restrictions, export bans, or financial sanctions are introduced quickly and unpredictably, having its own payment system becomes a safeguard for Europe.
Other major economies are moving in the same direction. Since 2020, China has been testing the digital yuan. As part of the pilot project, more than 230 million personal wallets and about 18.8 million corporate wallets have been opened. By the end of November, the system had processed over 3.48 billion retail transactions totaling approximately 16.7 trillion yuan. Beijing is already expanding the cross-border use of the digital yuan and allows interest to be paid on such savings.
Why the Digital Euro Should Not Replace a Bank Account
The main risk to the Eurozone’s financial stability is linked to banks. If the digital euro becomes a full-fledged alternative to a regular account, people could massively transfer their savings there, especially during crisis periods. For a commercial bank, this means an outflow of deposits and pressure on lending.
Emmanuelle Auriol, professor of economics at the Toulouse School of Economics, believes that without restrictions, digital euros could become a substitute for bank accounts. Therefore, the ECB is building in protective mechanisms in advance.
The ECB is preemptively setting restrictions so that the digital euro does not become a replacement for a bank account:
- Private users: a likely limit of about 3,000 euros in a digital wallet; this should restrain mass transfers of savings from banks.
- Yield: interest on the digital euro is not planned, so as not to create an incentive to store savings there.
- Companies: large balances in digital euros will not be allowed.
The project differs from cryptocurrencies and private stablecoins in several ways:
- the digital euro is not a cryptocurrency;
- its stability should not depend on market demand;
- issuance and support are provided by the ECB, national central banks, and the entire Eurosystem.
Privacy Remains the Most Sensitive Issue
For many consumers, the main concern is not technology, but privacy. The concern is understandable: in theory, a digital currency could give the state more opportunities to track citizens’ spending.
The security of the digital euro should be based not on a single app, but on the infrastructure of the ECB, national central banks, and payment intermediaries. It will include strict user authentication, data encryption, transaction limits, fraud monitoring, and checks under anti-money laundering rules.
The Chinese social credit system is often cited as a negative example, where a person’s reliability score can affect access to loans, jobs, government services, and travel. Emmanuelle Auriol believes such parallels with the ECB’s plans are incorrect.
Social credit systems like China’s have nothing to do with the digital euro project. Privacy protection can be combined with crime prevention without turning payments into a tool of social control.
Transparency will depend on the type of payment. Small offline transactions should be closer to cash: transaction details remain on participants’ devices and are transmitted to the system only as much as needed to prevent double spending. Online payments will go through payment intermediaries, so access to data is possible within the rules of client identification, fraud prevention, and legitimate requests from competent authorities.
The ECB also wants to add direct transfers between users via mobile phones. For small everyday transactions, this should maintain a high level of anonymity, while anti-money laundering rules will continue to apply.
For payments without internet, an offline mode is provided: the user will be able to pay even without a connection if the required amount is preloaded in the digital wallet. Technically, such a payment should be confirmed between the buyer’s and seller’s devices, and after the connection is restored, the data will be synchronized with the system.
Evelien Witlox, who leads the digital euro project at the ECB, describes it as a safe and accessible way for everyone to make digital payments, combining the convenience of modern tools with the reliability of cash. This focus is important: according to ECB data and research, the share of cash in the money circulation of European countries has been steadily declining in recent years.
Banks Fear Loss of Revenue
Another controversial issue is the money that banks and payment operators receive from each transaction. Currently, merchants pay commissions for accepting cards: usually from 0.5 to 1.5 percent per 100-euro transaction. These fees are split between the bank and the payment infrastructure operator.
The digital euro should reduce costs for sellers, but for banks, this means losing part of their income. At the same time, they may bear a significant share of the costs for creating and maintaining the infrastructure, customer service, and meeting security requirements.
Bas van Donselaar believes the Eurozone will have to find a balance. On the one hand, businesses need cheaper payments. On the other, banks need to understand how their participation in the project will pay off. Without a working compensation model, support from the financial sector will be weak.
Advantages and Risks of the Digital Euro
If we reduce the debate to practical consequences, the picture looks like this:
- Advantages: convenient everyday payments, higher security, reduced costs for sellers, and strengthened currency sovereignty of the Eurozone.
- Risks: possible outflow of deposits from banks, privacy issues, and loss of part of banks’ income.
Pilot Launch Expected in 2027
For the digital euro to truly achieve widespread adoption, the ECB proposes giving it the status of legal tender throughout the Eurozone. If such legislation is adopted, any merchant with a payment terminal will be required to accept digital euros at full face value and without additional charges to the buyer.
The value of the digital euro will be guaranteed by the European Central Bank and national central banks. One digital euro should always remain equal to one euro, meaning its price will not depend on market fluctuations, as is the case with crypto assets.
European Union countries that are not part of the Eurozone will also be able to offer their citizens the use of this form of European currency. Thus, the project could extend beyond countries where the euro is already the main monetary unit.
On June 23, the Economic and Monetary Affairs Committee of the European Parliament supported a decision paving the way for final negotiations. EU politicians expect to agree on the legal framework by the end of the year. The pilot launch of the digital euro is scheduled for 2027, and full implementation may take place in 2029.
If the project reaches this stage, Europe will gain not just a new payment method. At stake are control over payments, the stability of the financial system, the European Union’s right to its own technological solutions, and the euro’s ability to remain a strong currency in the digital age.
