What is the digital euro?
The digital euro is a planned digital form of cash, issued by the Eurosystem and available to everyone in the euro area. It would be central bank money for payments in shops, online and between people, with and without an internet connection. It does not exist yet: the EU regulation is still in negotiation. The German term is digitaler Euro.
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The digital euro in brief
| Term | Digital euro. German: digitaler Euro. |
|---|---|
| Issuer | The Eurosystem: the ECB and the national central banks of the euro area. |
| Legal source | Commission proposal COM(2023) 369 of . Council position , Parliament position , trilogue under way. |
| Timeline | Pilot from the second half of 2027 for 12 months. First issuance possible during 2029 if the regulation is adopted in 2026. |
| Cost for banks | 4 billion to 5.8 billion euros, as estimated by the ECB. |
How does the digital euro work?
The digital euro works through an account at a bank or a public intermediary, and the user pays with a phone or a card. The digital euro explained in the ECB's own words: "a digital form of cash, issued by the central bank and available to everyone in the euro area".
A user who links the digital euro account to a bank account can pay amounts above the holding limit; the shortfall comes from the bank account at once. For payments offline, the user first funds an offline digital euro account and then taps a phone against another phone or a shop terminal. The digital euro would pay no interest. Settlement runs on a central platform of the Eurosystem, and the ECB states that the digital euro "is not based on distributed ledger technology (DLT)". Basic payment services would be free of charge for people (Article 17 of the proposal).
What is the digital euro timeline?
The digital euro timeline runs from a first report in 2020 to a possible launch date during 2029. The ECB lists these steps (ECB, progress of the project):
| Date | Step |
|---|---|
| October 2020 | ECB "Report on a digital euro" |
| October 2021 to October 2023 | Investigation phase: design options and distribution models |
| November 2023 to October 2025 | Preparation phase: draft rulebook, selection of platform providers, experiments |
| October 2025 | Governing Council decides to move to the next phase |
| July 2026 | Draft rulebook, version 0.91 |
| Second half of 2027 | Digital euro pilot with staff of Eurosystem central banks and 36 payment service providers, for 12 months |
| During 2029 | Possible first issuance |
The ECB writes that it will decide on issuance only after the EU regulation has been adopted.
What does the digital euro proposal say?
The digital euro proposal of the European Commission makes the digital euro legal tender and lets the ECB limit its use as a store of value. The draft regulation, COM(2023) 369, is part of the Single Currency Package of .
- Article 7: legal tender status, with "mandatory acceptance, at full face value, with the power to discharge from a payment obligation".
- Article 16: the ECB develops instruments to limit the use as a store of value, such as a digital euro holding limit. Article 16(8): the digital euro "shall not bear interest".
- Article 17: no fees for people for the basic digital euro payment services.
No holding limit is set yet. At the request of the co-legislators the ECB tested hypothetical limits of up to 3,000 euros per person and found no harm to financial stability. The Council adopted its position on and the European Parliament on . The trilogue on the digital euro regulation has started (ECB, FAQ).
How private is the digital euro?
The digital euro would keep payment data away from the central bank: the ECB states that the Eurosystem could not link digital euro payments to specific people, online or offline. Under the digital euro privacy design, only the payer and the payee would know the personal details of an offline payment. The bank or other provider that distributes the digital euro checks for money laundering when the user funds or empties the account, as with cash withdrawals and deposits today. For online payments the provider identifies the user under the anti-money laundering rules, as for a bank account.
Is the digital euro a CBDC or a cryptocurrency?
The digital euro is a CBDC, not a cryptocurrency. The ECB calls it "a central bank digital currency, an electronic equivalent to cash". It adds: "As the digital euro would be backed by a central bank, it would not be a crypto-asset." The retail and wholesale forms of CBDC are in What is a CBDC?, and the difference to private tokens in Stablecoin vs CBDC.
The digital euro in Germany, Austria and Switzerland
Germany and Austria are in the euro area. The Deutsche Bundesbank and the Oesterreichische Nationalbank are part of the Eurosystem that would issue the digital euro, and the regulation would apply directly once adopted. Under the proposal, banks distribute the digital euro to their customers, and merchants who accept digital payments must accept it. BaFin supervises the providers in Germany, the FMA in Austria.
Switzerland is outside the euro area. For residents of a third country such as Switzerland, the proposal ties access to a prior agreement between the EU and that country, or to arrangements between the ECB and its central bank. The Swiss National Bank "currently does not see any clear advantages for the general public" in its own retail digital franc (SNB, CBDC). FINMA supervises Swiss banks. This page gives no legal advice.
Sources
- European Central Bank: Digital euro, read on
- European Central Bank: Progress of the digital euro project, read on
- European Central Bank: Digital euro, frequently asked questions, read on
- European Commission: Proposal for a Regulation on the establishment of the digital euro, COM(2023) 369 final,
- Swiss National Bank: Will the Swiss franc soon only exist digitally?, read on