On 28 June, the European Commission adopted a legislative proposal that lays the groundwork for the legal framework underpinning the digital euro. A digital euro would be akin to a digital version of central bank issued money and would offer greater choice to consumers and businesses in situations where physical cash cannot be used, e.g., in online payments.  It would not replace cash, but rather complement it. By providing an additional means of payment that could be used across the euro area, a digital euro could contribute to the development and resilience of European retail payments and could strengthen the international role of the euro. 

Complementary proposals

The draft regulation sets out how the digital euro will be established and how its main elements will be regulated. In parallel, the Commission has also adopted a proposal on the legal tender of euro cash to safeguard the role of cash, ensure it is widely accepted as a means of payment and that it remains easily accessible across the euro area. These proposals are complementary and aim to ensure that people, businesses, and public entities continue to have easy access to a public form of money that fits their needs.

The adoption of the proposals follows extensive preparatory work, which included a number of consultations with a wide range of stakeholders. The proposals cover various issues, but here are some of the key points: 

The digital euro as a form of central bank money for the digital age: Today, the only form of central bank money in euro available to people, businesses and public authorities for retail use is cash, i.e. euro banknotes and coins. Yet, while still widespread, the use of cash for payments in the euro area has been declining over the past decade due to the progress of digitalisation and changing consumer preferences. Therefore, it is necessary to establish a digital form of the euro to ensure that people, businesses, and public entities continue to have access to a central bank issued money in euro which is widely accessible and accepted throughout the euro area. Moreover, the digital euro will support other EU objectives such as financial inclusion, competition, and innovation in the retail payments market. 

The digital euro will not replace cash: It is intended to complement cash and to cater for consumers’ evolving payment needs and preferences in the digital age. The legislative proposal on legal tender of, and access to, euro cash ensures that people, businesses, and public authorities have a choice of which form of payment they use. Cash will continue to be widely accepted for payments and will remain easily accessible. 

Difference between the digital euro and electronically stored bank account money: Like cash, the digital euro would be issued by the European Central Bank (ECB), while electronically stored money on a bank account is the liability of commercial banks. People, businesses, and public authorities using a digital euro will hold a liability of the central bank, just like when they use banknotes. Moreover, it is also envisaged that the digital euro could be used to send money for payments in proximity even in the absence of an internet connection i.e. offline (where the payer and payee are in the same location). 

Access to the digital euro: Access to the digital euro will be provided through banks or other payment service providers, such as payment institutions and e-money institutions. The private intermediaries could be changed upon request by users. Those who don’t have a bank account may use a public entity or a private provider designated by Member States. Basic digital euro services – such as opening and closing a digital euro account, consulting balances, funding and defunding a digital euro account, transfers and payments – would be provided free of charge to individuals. 

Privacy aspects:  The digital euro will enable users to make digital payments while ensuring their data is protected. The users’ personal data will be accessed and processed by the bank or payment service provider whom they hold a digital euro account with. The ECB will not see the identity of the users. Moreover, for offline use of the digital euro, banks will see less data, offering to users a comparable degree of privacy to when they use cash.

Holding limits: Limits on the amount in digital euros a user can hold may be introduced to safeguard monetary and financial stability, combat money laundering and financing of terrorism.

Programmability: The digital euro will not have built-in restrictions on where, when, or to whom you can pay with your digital euros. Like with cash, it would be possible to use digital euro in a way holders choose to do so. But the digital euro will allow for conditional payments.

Next steps 

The proposed regulations are subject to the ordinary legislative procedure, which means that both the European Parliament and the Council need to approve them.

The proposed regulation on the establishment of the digital euro would be ‘enabling’ in nature. This means that it will only establish the digital euro and regulate the essential elements such as legal tender status, privacy, anti-money laundering (AML), distribution, financial stability, and international use. Once the regulation is adopted by the co-legislators it will be up to the ECB to decide if and when to issue the digital euro, and with which design features within the regulatory framework. 

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