This year, the digital euro project has regained momentum, with European legislators finally reaching agreement on a number of widely debated aspects. The next step is the reconciliation of positions in the so-called trilogue procedure – in July, negotiations officially began between the European Parliament, the Council of the European Union (EU), and the European Commission with a view to completing the legislative process for a common regulatory framework for the introduction of the digital euro.
It is hoped that the political negotiations and adoption of the digital euro regulation will be completed later this year, allowing the Governing Council of the European Central Bank (ECB) to take a formal decision by the end of the year and launch pilot projects, with the actual introduction of the digital euro planned for 2029.
In this commentary, I would like to touch on several aspects that will help the public better understand the digital euro project and its impact on our everyday lives.
The digital euro will complement rather than replace cash
The digital euro will be a complementary alternative to existing solutions and a new way of making payments digitally. Just as cash (banknotes and coins), the digital euro will be central bank money. Cash will continue to exist and remain available to people as it is today. Moreover, EU legislators and the ECB are working to strengthen the use and availability of cash.
Europe will have its own public, pan-European payment solution
The introduction of the digital euro will provide Europe with a payment infrastructure based on central bank money and European rules. This will reduce Europe's dependence on payment solutions managed outside Europe and provide an additional solution for people's everyday digital payments. The distribution and use of the digital euro will be supported by European payment service providers, through which everyone will be able to open a digital euro account and make payments.
The digital euro will be intended primarily for everyday payments, not for saving
The digital euro will be a means of payment that can be used in shops, online, and for payments to other people. To prevent it from becoming an alternative to bank deposits and having negative effects on the functioning of banks, a limit will be set on the amount of digital euro that can be held in each customer's account. However, everyone will be able to link their digital euro account to their commercial bank account, enabling them to make payments even when the amount of the desired purchase exceeds the balance in their digital euro account (the shortfall will automatically be taken from the commercial bank account and transferred to the payee).
The digital euro will also be usable without an internet connection
The digital euro is designed to enable offline payments, allowing people to pay each other and make payments to merchants even without an internet or mobile network connection at a particular moment. This will be particularly important in places with poor connectivity and in situations where digital communications are disrupted.
In Latvia, critical financial services, including offline payments, have already been introduced, but such solutions are not widespread elsewhere in Europe, and the digital euro will reduce this vulnerability. In Latvia, it will serve as a backup solution providing greater security.
The digital euro will be designed with particular attention to privacy
When making online payments with the digital euro, the Eurosystem (comprising the ECB and the national central banks of the euro area) itself will not be able to identify the individual user and their payments. The payment service provider, in turn, will have access to the information necessary to process the payment and comply with regulatory requirements. This is similar to how bank accounts operate today.
Meanwhile, offline payments will provide a level of privacy similar to that of cash – only the payer and the payee will know about the specific payment.
The digital euro will also be able to provide an additional payment option in the event of technical disruptions or crises
The digital euro is being developed with the aim of ensuring continuity of payments even in challenging circumstances. Its offline functionality will enable payments to be made even without an internet or mobile network connection. Moreover, the architecture of the digital euro system provides solutions for situations where a particular payment service provider experiences a disruption and is unavailable to process a digital euro payment.