The legislative proposal adopted by Ursula von der Leyen’s Commission forms the basis for implementing the digital euro, which is currently being designed by the European Central Bank (ECB). This controversial initiative is considered essential by EU leaders to counter private cryptocurrencies like Facebook’s failed Libra or the virtual currencies of rival powers such as China, thereby safeguarding “European monetary sovereignty.”
While the publication of this text represents a crucial step towards the issuance of digital euros, it does not mark the end of the process nor predetermine the ECB’s final decision. The regulation still needs to undergo negotiation and approval by the European Parliament and governments, with the Spanish presidency of the EU leading the process. Subsequently, Christine Lagarde’s institution will initiate the final phase of the project in autumn, with the aim of making the digital euro a reality by 2026 or 2027.
The project has raised significant concerns within the European Parliament and the banking industry, questioning its usefulness and added value. The European Banking Federation has warned of the risk of deposit flight to the digital euro (particularly during financial crises when it may be seen as a safe haven), which could jeopardize banks’ role in financing the economy.
Despite these concerns, Brussels has decided to proceed with the digital euro due to changing payment preferences, with 55% of Eurozone consumers favoring non-cash transactions compared to only 22% preferring banknotes and coins. The ultimate goal is to ensure that citizens and businesses have access to central bank money in the digital age. Additionally, the EU executive has adopted a regulation to ensure that cash continues to be widely accepted, with the digital euro serving as a complement rather than a substitute.
Brussels envisions the crypto-euro as a universally accepted digital means of payment for all types of transactions within the Eurozone, including e-commerce, retail stores, public administrations, and personal payments. Banks will be required to provide free access to the digital euro for all citizens, though they may charge a “reasonable” fee to merchants, comparable to other electronic payment methods.
The draft regulation also includes safeguards to mitigate the potential negative impact on banks. It explicitly states that the digital euro will not generate any interest, and it empowers the ECB to set quantitative limits on the accumulation of crypto-euros, although specific thresholds are not defined. Fabio Panetta, the head of the digital euro at the ECB, has suggested a ceiling of €3,000 per person, arguing that this amount, close to the average gross wage in the Eurozone, would not pose stability concerns.
Larger payments would be possible by linking digital euro accounts with traditional bank accounts. The European Banking Federation insists on the necessity of establishing a robust cap and maintaining it, even in the event of a banking crisis, to prevent a massive deposit flight to the digital euro.
Privacy protection in payments is a key concern in the ECB’s project preparations. The regulation explicitly ensures that neither the ECB nor national central banks will have access to user data or knowledge of who holds digital euro accounts. Private banks will manage citizens’ accounts and data (in compliance with EU anti-money laundering and anti-terrorist financing regulations) with the same privacy safeguards currently in place. Additionally, the digital euro can be used for offline payments, providing a level of privacy comparable to cash.
The regulation establishes the crypto-euro as legal tender, obligating merchants to accept it. However, it includes certain exceptions, particularly for businesses that do not accept digital forms of payment. Regarding the legal tender status of banknotes and coins, Brussels aims to ensure that individuals who prefer cash and require easy access to it can continue to do so, addressing the increasing difficulty in countries like Belgium or the Netherlands.
In this regard, the regulation aims to combat unilateral and pre-emptive exclusions of cash payments by companies.