Digital euro - frequently asked questions
We are increasingly making payments digitally and so the European Central Bank, together with the other central banks of the euro area, is considering whether we need to have the euro in a digital form as well as in paper banknotes and coins.
The euro in digital form would also be issued by the central bank, and would be accessible to everyone in the euro area and generally accepted as a means of payment.
No final decision has been taken about issuing a digital euro, but the idea has been researched and analysed since 2021. Discussions on the possible characteristics and functionality of a digital euro have involved various market participants, the public, and policymakers.
Many central banks around the world are considering similar questions.
Why was research started into creating a digital euro?
The main reason was that cash is being used less. You might not think about it every day, but cash is money that is backed by the reserves of the central bank, and one of its most important features is that it is convertible. This means that we can withdraw our money from an account in any commercial bank in cash, meaning in money with a guarantee from the central bank. This essentially means that a euro from one commercial bank is worth the same amount as a euro from another commercial bank, even if the commercial banks are not necessarily equally stable. Using cash less reduces the access of the public to this sort of money guaranteed by the central bank, but having the euro in digital form would help back that convertibility in an environment that is becoming increasingly digital.
Another important reason is the effective operation of payment systems. Digital central bank money would be an extension of private sector systems and would give the euro area its own alternative or backup solution if there were serious problems with foreign payment systems. The digital euro would also provide a universal payment solution that can be used equally across the whole euro area alongside the various very different, and in places quite local, payment solutions.
The digital euro might also create new opportunities for boosting innovation in the euro area and increasing competition for payment solutions, by operating alongside card payments in shops or in e-commerce for example, and competition between payment service providers such as banks, payment institutions and e-money institutions.
What is the digital euro and will cash disappear entirely?
The digital euro would be money issued in electronic form by the European Central Bank with a central bank guarantee.
The digital euro would not displace or replace cash. It would exist in addition to cash, giving it an extra electronic form while maintaining anonymity and allowing offline use.
The digital euro would allow the central bank to guarantee consumers access to a safe and free means of payment, just like cash, that is easy to use and is accepted throughout the euro area.
Cash will not disappear. As long as there is demand, the European Central Bank will continue to make sure that euro cash in the form of paper banknotes and coins remains widely available in the future.
What is central bank money and why is it important?
Central bank money is money that is guaranteed by the central bank as an institution under public law, and more broadly by the public sector.
Cash is currently the only form of central bank money that can be accessed by the general public in the euro area.
Central bank money is a risk-free asset, and the central bank maintains the value of it through its reserves. This means there is no market risk, credit risk or liquidity risk.
The one-to-one convertibility of central bank money is a key requirement if the private sector is to have confidence in cash, for use as deposits in commercial banks for example. This then protects the stability of the financial system and ensures that payment systems work.
It is in interest of the central bank to make sure that central bank money remains accessible even in digital form, and that it preserves its role as a public good.
Is the digital euro the same as crypto?
The digital euro has nothing at all in common with crypto assets, sometimes called cryptocurrencies.
Crypto assets are not guaranteed by a central institution, so there is no way to be certain that those assets could be exchanged for cash at any given moment. Crypto assets do not fulfil the key functions of money of being a reliable means of payment, a store of value, and a measure of value. The value of crypto assets is very volatile, and they are not generally used for making ordinary payments.
The digital euro would equally not be a programmable money, so that, as with cash, the central bank cannot limit who uses it, when or how.
What is the timetable for this?
The research phase of the digital euro project will run until autumn 2023.
The legislation needs to be changed for the digital euro to be introduced into circulation, and the European Commission made legislative proposals for this in June 2023.
The Governing Council of the European Central Bank (The Governing Council is the members of the European Central Bank’s Executive Board and the governors of all the national central banks of the euro area) will decide in October 2023 whether to continue with the project of preparations for introducing the digital euro into circulation. Further preparations after that may still take several years.