The Digital Euro: A New Chapter For European Finance

The European Parliament Economic and Monetary Affairs Committee has recently approved a legislative proposal on what is referred to as the 'single currency package', comprising three legislative instruments:

1. the establishment of the digital euro;
2. the provision of digital euro services by payment services providers (PSPs), incorporated in member states whose currency is not the euro; and
3. the legal tender of euro banknotes and coins.

The proposal seeks to modernise the Eurosystem in the area of digital finance by offering individuals and businesses a private, secure and innovative means of payment, while safeguarding their right to choose their payment method.

The establishment of the digital euro

The digital euro is designed to be an electronic form of money, issued directly by the European Central Bank (ECB). It will serve as a digital complement to physical cash and will be accessible for both online and offline transactions. Online payments will operate through an account-based system, while offline will function similarly to physical cash, hence, if the device is lost, any stored offline funds will not be recoverable, and refund will not be provided. Distribution across the European Union will be carried by banks and non-bank payment service providers (PSPs), including e-money providers and regulated crypto-asset providers. The digital euro will be mandatory for most businesses, though exceptions may apply to the self-employed and small businesses that do not accept any other form of digital payment. Notably, to safeguard the financial system’s stability, a cap will be imposed on the amount of digital euros an individual may hold.

The provision of digital euro services by PSPs incorporated in member states whose currency is not the euro

This instrument will enable banks and PSPs incorporated in EU Member States whose currency is not the euro to distribute the digital euro, subject to the same regulatory framework that applies to their counterparts in the Eurozone. It should be noted that the ECB will retain authority to restrict access to, and use of, the digital euro, at any time.

The legal tender of euro banknotes and coins (cash)

Under this instrument, Member States will be required to guarantee that all individuals retain access to physical cash, and to conduct regular assessments of cash availability, with particular attention to the needs of vulnerable groups, including the elderly, low-income earners, and the unbanked. Merchants and businesses will be prohibited from refusing cash payments.

The digital euro pilot

The digital euro will undergo practical testing through the digital euro pilot programme in 2027. More specifically, following a call for expressions of interest in March 2026, the ECB selected 36 PSPs, including both banks and non-bank service providers from across the EU, to participate in the pilot. It is worth noting that two PSPs, one bank and one non-bank service provider, established and operating in Cyprus, expressed interest and were selected for participation.

During the pilot, a beta version of the digital euro will be assessed, to validate the infrastructure against real-life, day-to-day needs and scenarios, including payments at restaurants, coffee shops, and other service providers. The pilot will run for a period of 12 months commencing in the second half of 2027, and will be performed at the ECB and 19 national central banks across the EU. Notably, the Central Bank of Cyprus has signed up and will participate to the pilot alongside the national central banks of Greece, Belgium, Germany, Estonia, Ireland, Spain, France, Croatia, Italy, Latvia, Lithuania, Luxembourg, the Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland. The pilot will involve staff from the ECB and participating national central banks, as well as e-commerce merchants and merchants operating in the hospitality sector. Participants will have access to digital euros for their payments, including daily expenses like coffee at their on-site coffee shop or for lunch in their canteen, person-to-person payments (both online and offline), and person-to-business payments (both at the physical point of sale and electronically).

According to the ECB, and if the Regulation on, inter alia, the establishment, use and operation of the digital euro will be adopted in 2026, a first issuance of the digital euro is intended to take place during 2029. The ECB has, however, emphasised that, whether to issue a digital euro once the relevant Regulation has been formally adopted has yet to be decided.

What should not be overlooked is the Union's clear intention. The digital euro is designed to complement cash, not to replace it. As one MEP has aptly stated: "No one should be forced away from cash, and no one should be left without a secure, resilient and genuinely European digital payment option […]. Cash and digital euro: two ways to pay for one single freedom, that of each citizen to choose."

Much remains to be accomplished before the digital euro becomes a reality. The cornerstone of this process is, unquestionably, the adoption of a clear and unambiguous legal framework by the EU legislature. Yet, even at this early stage, some experts take the view that the introduction of the digital euro could be transformative for European digital finance.