The European Council has taken a significant step towards modernizing the euro by agreeing on new proposals that introduce a digital euro while simultaneously assuring the continued importance of cash. This landmark initiative aims to enhance the EU’s economic sovereignty and maintain the relevance of its single currency as the digital landscape evolves.
A Digital Complement to Cash
At the heart of the proposed digital euro initiative is a clear recognition of the need to preserve the benefits of cash in an increasingly digital world. As cash transactions continue to dwindle—from 68% of daily transactions in 2019 to an anticipated 40% by 2024—the European Central Bank (ECB) acknowledges a crucial gap that the digital euro aims to fill. The new digital currency will serve not to replace physical cash, but to complement it, offering a public digital payment option that remains universally accessible.
The shift in payment habits underscores the urgency of this initiative. With rising trends towards card and contactless payments, the Eurosystem recognizes that failing to provide a digital alternative could undermine its commitment to monetary sovereignty. A digital euro will ensure that citizens can still access a form of central bank money, even as cash usage declines.
Key Features of the Proposed Digital Euro
The proposed digital euro is envisioned as a central bank digital currency (CBDC), directly backed by the European Central Bank and convertible into cash at par. This means users can maintain a seamless experience when transitioning between digital and physical forms of money. Designed for both online and offline use, the digital euro would maintain a high degree of privacy, allowing for secure transactions even in areas with limited internet access.
Importantly, the ECB emphasizes that this digital currency will not fall into the trap of being ‘programmable money’—a concept that could restrict how funds are spent. Instead, as outlined in Article 3 of Proposal 369, the digital euro will be a digital form of the single currency, ensuring users retain freedom and flexibility in their spending.
Boosting Sovereignty and Resilience
As European payment methods have increasingly been overshadowed by foreign solutions, preserving monetary sovereignty is of paramount importance. The digital euro emerges as a solution not only to enhance individual autonomy in financial transactions but also to ensure that all facets of the payment system remain within European control. This initiative is crucial for countering violations of market control by non-European platforms, which have been filling the void left by declining cash usage.
Moreover, the digital euro aims to bolster resilience—providing a reliable fallback option during times of systemic crisis or technological failure. With no existing comprehensive European solution for making payments across e-commerce, in-store purchases, or person-to-person transactions, the digital euro represents a strategic opportunity for Europe to solidify its financial infrastructure and maintain competitive edges globally.
The Legal Framework and Next Steps
The legal implications of the digital euro are robust and clear. While cash will continue to be protected as legal tender—guaranteeing its acceptability across the eurozone—the digital euro will join its ranks, enjoying similar legal tender status as stipulated in Article 7 of Proposal 369. This framework ensures that both the physical and digital forms of the euro maintain parity, with full mutual convertibility.
As part of its preparatory phase launched in October 2023, the ECB reassured the public that this is preliminary groundwork and does not signify a definitive decision to issue a digital euro. Such careful planning is essential in establishing a digital currency that is easy to use and widely accessible, as mandated in Article 22 of the same proposal.
Future of Money in the Eurozone
The dialogue surrounding the digital euro goes beyond mere technological advancement—it’s about preserving a foundational element of the European identity. As F. Collomp and D. Guinot noted, the digital euro presents “an opportunity for Europe to preserve its monetary sovereignty” while balancing the relationship between state-issued and private currency solutions. Public trust in money, its accessibility, and the potential for innovation in the payment landscape hinge significantly on how this digital currency is structured and implemented.
With the trajectory of cash and payments shifting rapidly, the EU’s proactive measures through the digital euro initiative could redefine not just how transactions are made, but also how financial authority and privacy are managed in the years to come. As the EU moves closer to making these proposals a reality, the emphasis will be on ensuring that the digital euro serves as a tool for empowerment rather than a point of control.
