The Digital Euro: A Bid for Resilience and Lower Costs
The European Central Bank (ECB) is pressing ahead with plans to launch a digital euro, aiming for a potential rollout by mid-2029, contingent on the passage of necessary legislation. The move, discussed in a recent interview with ECB Executive Board member Piero Cipollone, is framed as a strategic imperative to bolster Europe’s financial autonomy and reduce reliance on non-European payment providers, rather than simply offering another payment solution.
While a digital euro is not yet a reality – legislation is still required – the ECB believes it’s crucial to preserve citizens’ freedom to pay with central bank money, extending the benefits of cash into the digital realm. Currently, cash is often unusable for online transactions. The digital euro would bridge this gap, offering a digital equivalent of physical cash.
“With the digital euro we are creating a digital version of cash,” Cipollone explained. “It will preserve their freedom to pay with money issued by their central bank – their money.”
Addressing Concerns About Fragmentation and Resilience
A key driver behind the digital euro is the fragmented nature of the European payments landscape. Consumers often require multiple payment instruments to cover all use cases – some work online, others in stores. The ECB envisions a single digital instrument that works seamlessly across all scenarios, including offline transactions, even without an internet connection or electricity.
However, the ECB’s push isn’t solely about convenience. A significant portion of card transactions in Europe – nearly 70% – are processed by non-European companies. This reliance raises concerns about strategic autonomy and the resilience of the European payment system, particularly in a geopolitical climate marked by uncertainty. The digital euro is presented as a solution to reclaim control over a fundamental aspect of the European economy.
“As European citizens, we should be concerned about this,” Cipollone stated, referring to the dependence on non-European payment providers. “With the digital euro we will solve this problem.”
Benefits for Cyprus and Small Businesses
The digital euro is expected to be particularly advantageous for smaller economies like Cyprus, where the cost of accepting digital payments through international card schemes is disproportionately high. The ECB estimates that small merchants in Cyprus face costs three to four times higher than larger businesses when accepting card payments.
The ECB plans to waive scheme fees for the digital euro, significantly reducing transaction costs for merchants, especially small businesses. The introduction of a central bank digital currency is expected to increase competition in the payments market, giving smaller merchants more leverage in negotiations with private payment providers.
Addressing Bank Concerns and Ensuring Financial Stability
Banks have voiced concerns that a digital euro could lead to deposit outflows as customers shift funds into digital euro wallets. The ECB has taken steps to mitigate these concerns, designing the system to avoid disrupting the financial system.
The digital euro will not be remunerated, removing any incentive for users to move funds from their bank accounts. Transactions will be processed through a “waterfall” system, where money is drawn directly from the user’s bank account at the time of payment, rather than requiring pre-funding of a digital euro wallet. Holding limits will also be implemented, the specific level of which is still under discussion.
“We built in some safeguards from the very beginning,” Cipollone assured. “Financial stability is not endangered.” The ECB has published a report for the European Parliament detailing its analysis, which indicates that even with relatively high holding limits, financial stability would not be threatened.
Privacy and Data Protection
Privacy is a central tenet of the digital euro’s design. The ECB has prioritized protecting user data, responding to public concerns about surveillance and control. For online transactions, the ECB will only see encrypted codes representing the payer and payee, without identifying the individuals involved. The banks will retain the identifying information, mirroring the current system.
For offline transactions, privacy will be even more robust, with only the payer and payee knowing the transaction details, facilitated by a direct transfer of funds between their devices. The ECB emphasizes that it is utilizing state-of-the-art technology to ensure data protection.
“We have built the whole project around privacy,” Cipollone said. “For the online solution, we will not have people’s data. We will not know who is paying whom.”
Legislative Progress and Timeline
The legislative process is currently underway. The European Commission issued its initial proposal in June 2023, and the Council of the European Union reached an agreement in December 2025. The European Parliament is expected to vote on its position in May 2026, paving the way for negotiations and a potential legislative agreement by the end of the year.
The ECB is already preparing for the potential issuance of the digital euro, with plans to launch a pilot program in 2027 to test the system before a full rollout, targeted for mid-2029, assuming the legislation is approved. The ECB’s timeline is directly linked to the progress of the legislative process, emphasizing the need for swift action to address the challenges facing the European payments landscape.
