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 issuing the euro into circulation in a digital form in addition to paper banknotes and coins. That would allow central bank money to be used for payments in digital environments as well.
Like euro cash, the digital euro will be accessible and accepted throughout the euro area as a free and secure means of payment that can be used both online and offline. The digital euro would be made available to citizens and companies by banks and other payment service providers.
The possible features and functions of the digital euro have been being analysed since 2021, and the discussion has involved market participants, the public and political policymakers. The final decision to issue the euro in digital form has not yet been taken.
Other central banks around the world are also considering issuing digital money into circulation.
Where does the idea of the digital euro come from?
The main reason is that the use of cash is declining. This is limiting public access throughout the euro area to an accessible and universally 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 important 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 would be Europe’s own universal means of payment for the euro area that could work as an alternative to private sector solutions, and could be a backup solution if payment solutions from outside Europe faced severe interruptions or blockages. This would increase Europe’s strategic autonomy while at the same time offering consumers and retail businesses greater choice of ways of paying.
The digital euro would also help create new opportunities for innovation in the euro area and increase competition. This particularly concerns means of payment, as the digital euro could be used alongside card payments in shops or online stores, and would affect payment service providers through competition between banks, payment institutions and e-money institutions.
Will the digital euro cause cash to disappear?
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 would be an addition to cash and it will give the euro a digital form. The digital euro would be issued and backed by the European Central Bank and it could also be used offline if there is no internet connection available.
What is central bank money and why is it important?
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 into central bank money is important for maintaining confidence in private sector money, as deposits in commercial banks for example. This, together with the deposit guarantee scheme, protects the stability of the financial system and ensures that payment systems work.
The central bank wants to make sure that central bank money remains accessible and that it preserves its role as a public good in the digital era as well. Cash is currently the only form of central bank money that is generally available in the euro area.
Is the digital euro the same as crypto?
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 could 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 could be exchanged for cash of the same nominal value.
The digital euro will not be a programmable money. The central bank does not after all limit who uses cash, or where or for what.
How will the privacy of users of the digital euro be assured?
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, would have similar information on the parties to a payment made online that they would with any electronic payment, so that they can make the checks needed to prevent illegal use. Payments made online with the digital euro would be more private than those made with other digital means of payment, as only the user of the digital euro can decide whether to allow the intermediaries to use their data to receive commercial offers. If the legislator provides for it, the offline use of the digital euro would guarantee the same privacy for users as cash.
When will the digital euro come?
The research phase of the digital euro project ran until autumn 2023. The Governing Council of the European Central Bank, which consists of the members of the bank’s Executive Board and the governors of the national central banks of the euro area, decided in October 2023 to proceed with preparations for introducing the digital euro into circulation. This means more detailed analysis and the first real-world trials.
Introducing the digital euro into circulation will also need the legal basis to be laid. The European Commission proposed a draft of the law for this in June 2023. The Governing Council of the European Central Bank can only take the decision to launch the digital euro into circulation once the European Parliament and the Council have ratified the proposal. All of that will take several years yet.
More information on the digital euro can be found on the website of the European Central Bank.
The progress reports on the research phases for the digital euro are available to read.
Published 10.04.2024