Europe preps Digital Euro to enter circulation in 2029

The Governing Council of the European Central Bank (ECB) has decided the bloc needs a digital version of the Euro, and ordered work that could see it enter circulation in 2029.

Europe initiated a “preparation phase” for a Digital Euro in November 2023. Yesterday, the ECB said that effort succeeded. ECB President Christine Lagarde said developing a Digital Euro will make the currency “fit for the future.”

Asked why the European Union needs a Digital Euro, and if it is a solution in search of a problem, Lagarde said “The key points for me are : Money is a public good; central banks are the custodian of that public good; and central money issued by central banks has to have its digital form, because we’re moving into a different era where not everybody will want necessarily to have banknotes.”

Two thirds of digital payments in the Euro area are intermediated by non-European companies

A digital currency would also reduce the European Union’s reliance on payment service providers from outside the bloc.

Fabio Panetta, Governor of the Bank of Italy, pointed out that European banks represent only a third of digital payments activities within the Eurozone, and that “Two thirds of digital payments in the Euro area are intermediated by non-European companies, both for digital payments at the point of sale and digital payments online.”

“The reason why this is so is that European banks did not agree until now on ways to provide their services to the entire Euro area,” he said. “They don’t have what is called in technical terms a ‘rail’, the infrastructure to provide, to offer their digital payment services to all European citizens.”

Panetta therefore thinks that a Digital Euro would mean European banks can compete across the continent.

“One of the main benefits for the banks in the Euro area is that once the digital euro infrastructure will be built, they will be able, by using this so-called open standard infrastructure, to use that rail and compete at a European level, thus generating additional business, additional revenues, and there will be many implications in terms of sovereignty for the euro area, in terms of control of the information that travels with your payments.”

Lagarde said the ECB’s plan is to conduct a pilot of the Digital Euro by 2027 with a view to possible public use in 2029.

The Digital Euro would be a “central bank digital currency” (CBDC), a concept that has been explored around the world but attracted critics who worry they could erode privacy or restrict freedoms.

Privacy advocates argue that every digital transaction creates records, so it could be possible to track a consumer’s use of a CBDC. Freedom-loving folk worry that CBDCs could be programmed so that some consumers could not use them on certain goods or services – think welfare recipients not being able to buy alcohol.

Security is another concern, because there’s no point in encouraging the public to adopt digital wallets if they’re easier to rob than physical wallets.

The ECB estimates it will cost €1.3 billion to get a Digital Euro into circulation, and that operating costs would then be around €320 million per year. ®

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