Digital euro

The digital euro will be an additional payment solution alongside instant payments and card payments that will work both online and offline. The digital euro will have several advantages for both consumers and merchants.

The digital euro will be a single means of payment that is simple to use and is legal tender, like cash. It will be usable throughout the euro area for payments between people, in physical shops or in e-commerce.

The digital euro will give users confidence that their payments will always work, as it will be a stand-alone solution for making payments alongside instant payments and card payments that will also allow digital payments to be made offline.

The digital euro will ensure greater privacy for users than the current digital payment solutions, because the central bank as the processor of digital euro payments will not be able to identify users directly and only the payer and the payee will know about offline payments.
The digital euro will be Europe's own new means of payment that will reduce dependence on technology and on payment service providers from outside Europe like VISA and MasterCard. The additional means of payment will let merchants negotiate for cheaper access to digital payment solutions.

The digital euro will be made available to citizens and companies through banks and other payment service providers.
The digital euro will be free for private individuals to use for basic* digital euro payment services.
* The list of free basic payment services may change during legislative debate.

The European Central Bank has been analysing the possible features and functions of the digital euro since 2021, involving market participants, the public and political policymakers in the discussion. After a two-year investigation phase, the Governing Council of the European Central Bank decided in October 2023 to continue for a further two years with the first part of the preparation phase, during which the necessary rulebooks will be written, various technical solutions will be tested, and possible developers of a platform for the digital euro will be chosen.
The second part of the preparation phase will be development work and introducing the digital euro into circulation, once the necessary legal groundwork has been laid. The European Commission submitted draft legislation for this in June 2023. The final decision about introducing the digital euro into circulation will be taken by the European Central Bank once the draft act has become law, and this will be preceded by debates in the European Parliament and the European Council.

• The digital euro offers more privacy and security in a crisis than card payments. Eesti Pank blog, 25.06.2024
• The digital euro on the website of the European Central Bank
• The legislative package of the European Commission for the digital euro

Reviews of the progress of the digital euro project

Investigation phase:

• First report
• Second report
• Third report
• Fourth report
• Fifth report

First part of the preparation phase

• First report
• Second report

The main reason for suggesting the digital euro is that people are using cash less and less. This is limiting public access throughout the euro area to an accessible and accepted means of payment that has the guarantee of the central bank. It is currently not possible to use central bank money in a digital environment.

Another reason is the security of operation of payment systems in the euro area. We currently depend very much on service providers from outside Europe. The digital euro will be the euro area's own universal means of payment that can work as an alternative to private sector solutions, and can be a backup solution if payment solutions from outside Europe faced interruptions or blockages. This will increase Europe's strategic autonomy while at the same time offering consumers and retail businesses greater choice of ways of making payments.

The digital euro will also help create new opportunities for innovation in the euro area and increase competition. This particularly concerns means of payment, as the digital euro will be usable alongside card payments in shops or online stores, and payment service providers, as there will be greater competition between banks, payment institutions and e-money institutions.

Cash will not disappear. The European Central Bank is responsible for making sure that euro cash in the form of banknotes and coins is, and remains, widely available and generally accepted in the euro area.

The digital euro will be an addition to cash and give the euro a digital form. The digital euro will be issued and backed by the European Central Bank and it will also be possible to use it offline if there is no internet connection available.

Central bank money is money that has its value backed by the central bank.

One of the most important characteristics of central bank money is convertibility. This means that we can withdraw each euro from an account in any commercial bank in cash, meaning in money with a guarantee from the central bank.

Central bank money does not face any market risk, credit risk or liquidity risk.

The one-to-one convertibility of central bank money is important for maintaining confidence in private sector money, as deposits in commercial banks for example. This works with the deposit guarantee scheme to protect the stability of the financial system and ensure that payment systems work.

The interest of the central bank is in making sure that central bank money remains accessible even in the digital age, and that it preserves its role as a public good. Cash is currently the only form of central bank money that is generally available in the euro area.

Cash is the national currency that is issued by a central bank. Euro cash is issued by the European Central Bank and is equally recognised and similarly used across the whole of the euro area, creating a single measure for the euro area.

If a user pays cash onto their bank account, the central bank money is converted into commercial bank money. This means that the money is now on the balance sheet of the commercial bank. The opposite applies when cash is withdrawn from the bank account, through an ATM for example, and the commercial bank money is converted into central bank money or cash. The one-to-one convertibility of central bank money is important for maintaining confidence in private sector money. This works with the deposit guarantee scheme to protect the stability of the financial system and ensure that payment systems work.

The digital euro is not a crypto asset.

Crypto assets are not guaranteed by a central institution like a central bank, so there is no way to be certain that those assets can be exchanged for cash at any given moment if needed.

The value of crypto assets is very volatile, and so they are not generally used for making ordinary payments.

The European Central Bank will ensure that the value of the digital euro is the same as that of the euro in cash and that it can be exchanged for cash of the same nominal value.

The digital euro is not a programmable money. The central bank does not after all limit who uses cash, or where or for what.

The European Central Bank as the provider of the digital euro infrastructure will not be able to identify directly who has made or received payments with the digital euro. Intermediaries for the digital euro, which may be a bank or payment institution, will have similar information on the parties to a payment made online that they have with any electronic payment, so they can make the checks needed to prevent illegal use. Payments made online with the digital euro will be private, as only the user of the digital euro can decide whether to allow the intermediaries to use their data to receive commercial offers. Using the digital euro offline without an internet connection will guarantee the same privacy for users as they have with cash.

The European Central Bank will be supervised by independent data protection agencies to ensure compliance with the data protection law of the European Union.

The digital euro will offer merchants a new, universal and cheap way of accepting digital payments. It will increase competition and put merchants in a better position when negotiating with providers of card payment solutions to make the services cheaper to use.

The digital euro will create a platform that can be used to provide clients with new, universal, pan-European payment solutions and services, encouraging e-commerce, and innovation and competition in the payment solutions market. It will reduce dependency on the few dominant service providers that currently provide cross-border solutions in the euro area.

The European Central Bank will not charge payment services providers any fee for participating in and using the digital euro payment scheme. This will let them offer merchants more favourable conditions for accepting digital euro payments. The new and cheaper scheme will also allow payment service providers to negotiate better conditions with the global card schemes.

The digital euro is primarily intended for use in payments, not for deposits or investments, so various measures have been planned for ways to stop outflows of cash from the commercial banks because of the digital euro.

• interest will not be paid on holdings in digital euros, the same as with cash
• limits will be applied to the size of holdings of digital euros
• the limit on deposits for merchants and businesses will be set at the zero, and digital euros will be converted immediately into commercial bank money when they are paid in.

To open a digital wallet for the digital euro, the user will first have to contact their bank. People who do not have a relationship with a bank will need to contact some other payment service provider that will make the transactions needed to open an ordinary account for the user. To use the digital euro, the user will need to have a mobile device with an appropriate app, or will need to apply for a digital euro payment card.
Digital euros can be loaded into the digital wallet through an ATM for example, or as a transfer from the user's account at a commercial bank. Payments can be initiated contactlessly with the telephone or card, or through a QR code.

Transfers of digital euros can be received in the wallet up to the maximum permitted limit. If the amount received exceeds this, the excess can be directed automatically to the commercial bank account of the user, or can be transferred manually. If the amount to be paid is larger than the current digital euro limit, it can be arranged that the payment solution takes the excess amount automatically from the bank account linked to the digital euro wallet.

Payments in digital euros in physical shops, in e-commerce, or between people will be settled immediately as instant payments.

* Limits will be set on holdings in digital euros to prevent any undesirable impact on financial stability.