Progress In Preparations For Digital Euro

The past year saw great strides towards the introduction of a digital euro, which would address the evolution of payment trends. The European Central Bank is now aiming for a potential first issuance during 2029, with a pilot exercise and initial transactions potentially starting as soon as mid-2027.

The use of cash is declining across the Eurosystem, with digitisation making online payments the most sought-after solution. In 2024, cash accounted for only 24% of day-to-day payments, and the share of companies not accepting cash tripled to 12% over the past three years.

The intention was never to replace physical cash, but to offer a complementary system which ensures public trust and also preserves Europe's monetary sovereignty across the euro area.

Market Response

The reaction has been positive: the ECB organised two workstreams involving around 70 market participants, including banks, FinTechs, merchants and PSPs. They concluded that the digital euro had strong innovative potential, in terms of both technical capabilities and its role in improving financial inclusion, while enabling market participants to develop new business opportunities.

Indeed, a majority of respondents (66%) to a Eurosystem survey carried out among a panel of EU citizens were interested in trying the digital euro – broadly consistent with findings from other surveys conducted by the ECB and National Central Banks.

Addressing Fragmentation

A digital euro would provide a solution to Europe's fragmented payments landscape: nearly two-thirds of euro area card-based transactions are processed by non-European companies, while 13 eurozone countries depend entirely on international card schemes or mobile solutions for in-store payments.

However, the introduction of a digital euro requires a complex support system to ensure its success. The most important aspect for the ECB was to create the rulebook: a single set of rules, standards and procedures for payment service providers (PSPs) who intend to participate in the scheme. A draft of this has already been through the first phase of feedback.

Infrastructure Development

On a practical level, the ECB has also selected five external providers for the digital euro service platform (DESP), another key milestone achieved. So far, all have signed framework agreements, with specific agreements required before any development or operational work will be initiated through subsequent specific agreements.

Another aspect of the work was to ensure that the digital euro would remain operational and resilient in a wide range of scenarios, including in emergencies such as power or network outages. To ensure continued functionality in adverse conditions such as digital disruptions, the architecture includes safeguards for emergency scenarios. The Eurosystem would also operate a central ledger in a multiregion set-up, hosted across three different regions, each equipped with multiple servers in different locations.

Impact Assessment

One of the important issues dealt with over past year was the impact of the introduction on banks – and how much it would cost to run. It carried out a study which confirmed that using the digital euro for day-to-day payments would not harm financial stability within the euro area, even under a highly unlikely and extremely conservative crisis scenario. Co-legislators are looking at holding limits of up to €3,000 per person, although scenarios included a holding limit as low as €500 per individual.

The second analysis found that investment costs for the banking sector could range between €4 billion and €5.8 billion – broadly in line with 2023 estimates given by the European Commission.

The final cost of a digital euro – both for its development and operation – will depend on its design, its components and the related services that need to be developed. Total development costs are estimated at around €1.3 billion until the first issuance, with subsequent operating costs of approximately €320 million per year after that.

It is interesting to note that the Eurosystem would not charge or benefit from any digital euro transaction fees. Instead, it would bear the costs of the digital euro scheme and infrastructure, just as it does for euro banknotes – which, like the digital euro, are a public good. As with banknotes, these costs would be covered by "seigniorage" – the income the ECB earns from issuing money – even if digital euro holdings are considerably less compared with the banknotes in circulation.

Timeline

• 2020: Following report and public consultation by ECB, structured roadmap was launched
• 2021: Investigation phase started, focusing mainly on design of the digital euro
• 2023: Two-year preparation phase starts to lay the groundwork for the potential issuance of a digital euro
• 2024: First interim draft of the rulebook produced. A revised version was issued in 2025
• 2025: European leaders called for accelerated progress on the development of a digital euro
• 2026: European Parliament is set to vote on the digital euro in the first semester

The ECB Governing Council's possible decision on whether to issue a digital euro, and on what date, will only be taken once the Regulation on the establishment of the digital euro has been adopted.

For more information visit the official ECB page at Digital euro.

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