The Digital Euro Is Coming: The EU’s Convenience Paradox | | MediumSitemapOpen in appSign up<br>Sign in

Medium Logo

Get app<br>Write

Search

Sign up<br>Sign in

Mastodon

Press enter or click to view image in full size

The Digital Euro Is Coming: The EU’s Convenience Paradox

This week a committee of the European Parliament adopted its position on the plan for the “Digital Euro”, a payment system directly managed by the European Central Bank. And might create a paradox: Could it become too successful?

Wolfgang Hauptfleisch

6 min read·<br>Just now

Listen

Share

This week the Economic and Monetary Affairs Committee of the European Parliament approved the plan for the “Digital Euro”, a payment system directly managed by the European Central Bank. While not a Visa or Mastercard alternative per se, if successful, will raise some interesting question about the future of retail banking. And about European independence from the dominating US financial services.<br>The basics, briefly<br>To get it out of the way: The Digital Euro is not a cryptocurrency, nor is it based on a blockchain. Despite being classified as a Central Bank Digital Currency (CBDC), it is not a currency on it own, but a digital equivalent to cash.<br>The plan is for European citizens to have a digital wallet, into which Euros can be transferred, used for payments or withdrawn as cash.<br>The difference to a bank account is that no commercial bank is involved in the transfer: Payments are being settled directly by the European Central Bank. Payments can be made (at no cost) either to businesses (online and offline) or to other people directly.<br>Everyone in the euro area would be able to pay in digital euro free of charge, just the same as with banknotes and coins. (European Central Bank)

European Lawmakers will likely start negotiating details with the European Council of EU governments and the European Commission next month, aiming for final approval by the end of the year. The ECB currently plans to run a 12-month pilot of the digital euro in the second half of 2027, with a full launch in 2029<br>Supervised intermediaries<br>There is some involvement of commercial banks though: Commercial banks will be the institutions that … Because it is designed to function as a public good similar to physical cash, banks are required to act as distributors and provide access to the digital currency.<br>The European Central Bank (ECB) uses supervised financial intermediaries (commercial banks, post office etc) to distribute the digital euro so it “does not replace the private sector, but rather partners with it”. The ECB however handles the core settlement, while intermediaries manage customer-facing wallets, anti-money laundering checks, and user support.<br>Eligible for opening a wallet for the Digital Euro will be “Eurozone citizens”. Under current proposals, commercial banks will not be permitted to refuse the basic digital euro wallet for eligible citizens.<br>“Accessing the digital euro would mean opening an electronic wallet with a supervised intermediary, such as a bank or, for example, a post office.” (Banca d’Italia)

Withdrawing physical cash from a Digital Euro will work like a standard ATM transaction: One will be able to load or unload a Digital Euro wallet at compatible ATMs across the Eurozone. Again, free of charge.<br>With regard to privacy, the ECB states that:<br>The ECB and the Eurosystem would not be able to identify who you are or what you are buying from the payment data we get. Moreover, the digital euro’s offline functionality would guarantee a level of privacy comparable to cash. (ECB)

In the end, the Digital Euro wallet will be more private than a commercial bank account. The intermediaries (commercial banks) are not allowed to use transaction data for commercial purposes.<br>Inclusiveness<br>The digital euro will be designed to meet everyone’s needs. With our user research, we are listening to European citizens, gathering data and insights that will help shape an inclusive digital euro that leaves no one behind. (ECB)

The European Central Bank stresses the fact that it invests in research to make the Digital Euro as accessible and inclusive as possible:<br>These barriers are real. They range from not owning a smartphone, to limited digital literacy, to user interfaces that are not designed with accessibility in mind. (ECB)

For this reason, provisions for “Unbanked or digitally challenged individuals” will be made, and the system provides free, specially designed physical smart cards or devices to hold and spend their digital euros. People will be able to load, manage, or withdraw funds from these cards through designated physical access points, such as local post offices or commercial banks.<br>This should be generally applauded, and it is to be hoped that the ECB, supervised by the European Commission and the European Parliament, does a better job to prevent people from being excluded than commercial banks.<br>Micropayments and business<br>The digital euro is designed in a way...