Money and payments are the lifeblood of the economy, and governing their evolution is creating unprecedented challenges in a world increasingly permeated by digital technologies. The first new features on the landscape were bitcoins and other crypto assets: highly volatile, they are used for speculative purposes and as a means of payment in the shadow economy. The second type of cryptocurrency consists of stablecoins, which are intended to be pegged to a legal tender. Their use has gradually gained ground as a store of value for people living in countries with fluctuating currencies and high inflation or as an option for wholesale payments. The third category, introduced just a few years ago, includes Central Bank Digital Currencies (CBDCs) such as the digital euro. At the global level these CBDCs currently number around ten; most are at the experimental stage, with an overall value corresponding to a couple of billion euros. They are issued by central banks as cash equivalents with a reliable and guaranteed value.
In this scenario, the euro area faces three problems. First, the retail payments market is fragmented, and there is no genuinely European solution for payments at physical points of sale and in e-commerce transactions. Non-European card and digital wallet providers are therefore used, placing the continent’s strategic autonomy at risk. Second, tokenization and the use of distributed ledger technology (DLT) are changing the very nature of money and markets; these transactions present risks of fragmentation of liquidity and rigidity in its supply, as well as credit and foreign exchange risk if settlements are denominated in a foreign currency. Moreover, their dissemination undermines monetary stability and the role of public money as a payments anchor. Third, the use of stablecoins to resolve the problems of slow and onerous cross-border payments must also be considered. However, these instruments raise risks of currency substitution, and also pose a danger to financial stability: stablecoins pegged to the dollar could in fact weaken the international role of the euro, resulting in the European currency becoming less relevant in the digital world. This would translate into a less resilient EU payments system, reduced financial stability, and a weakening of the EU’s monetary sovereignty and strategic autonomy.
In this regard, the European Central Bank (ECB) has taked steps to ensure that the euro remains stable, reliable, and usable in the digital world: it has assumed a leading role in transforming the currency and modernizing payment services in the euro area.
In addition to projects on the fast payments system and wholesale payments, the best-known works-in-progress concern the digital euro: once an EU legislative framework has been adopted, the ECB will be able to issue a digital equivalent of cash for retail payments. This would be a public means of payment with legal tender status throughout the euro area, both in physical and online stores. The benefits of cash would thus be extended to the digital world, with a high level of personal data protection, and the EU’s freedom of choice and strategic autonomy would be strengthened. Another benefit would be a reduction of today’s over-reliance on a few dominant non-European private providers: this would open up opportunities for payment services, wallets and cards offered by EU operators.
In designing the digital euro, the ECB’s goal is to preserve the role of banks in financing the economy. This would include distributing the digital euro, maintaining customer relations, and continuing to manage accounts in digital euros as well – all services for which banks would be remunerated. There would also be safeguards to protect financial stability: the digital euro would not be remunerated and holding limits would prevent destabilizing withdrawals.
However, the timescale for the introduction of this instrument has been a cause for debate. Indeed, the approval process for a European Commission legislative proposal dating from June 2023 is still ongoing. If the co-legislators – the Council and the European Parliament – adopt the regulation in 2026, a pilot exercise could take place in the second half of 2027 and the digital euro could be ready for first issuance in mid-2029. The concern is that, until then, alternatives such as stablecoins may gain ground in the European market, making work on the digital currency a belated solution.
In any case, the outcome of the digital euro is likely to depend on public acceptance: only a user-friendly, accessible, and inclusive solution will be able to establish itself as a pan-European and diversified payment method. And it will have to be integrated with payment instruments that are already available on the market and fully interoperable with the private sector.