In 2020, the European Central Bank published a Report on a digital euro, which explored benefits and challenges of issuing a digital euro and then a consultation ran until 12 January 2021. The European Commission has now proposed a Regulation establishing the legal framework for a digital euro as a complement to euro banknotes and coins.
It would seek to ensure that individuals and businesses have the option to pay digitally with a widely accepted, cheap, secure and resilient form of public money in the euro area (complementing the private solutions that exist today). A digital euro would work like a digital wallet. People and businesses could pay with the digital euro anytime and anywhere in the euro area.
The press release says that it would be available for both online and offline payments. Payments could be made from device to device without an internet connection, from a remote area or underground car park. While online transactions would offer the same level of data privacy as existing digital means of payments, offline payments would ensure a high degree of privacy and data protection for users: they would allow users to make digital payments while disclosing less personal data than they do today when they take cash out of an ATM. Nobody would be able to see what people are paying for when using the digital euro offline.
Banks and other payment service providers across the EU would distribute the digital euro to people and businesses. Basic digital euro services would be provided free of charge to individuals. To foster financial inclusion, individuals who do not have a bank account would be able to open and hold an account with a post office or another public entity, such as a local authority. In addition, to ensure consistency with Directive (EU) 2019/882 (European Accessibility Act), the digital euro will be designed in a way that maximises its foreseeable use by persons with disabilities, functional limitations or limited digital skills, and older people.
Merchants across the euro area would be required to accept the digital euro, except very small merchants who choose not to accept digital payments (as the cost to set up new infrastructure to accept payments in digital euro would be disproportionate).
The digital euro aims to be a solid basis for further innovation, for example, allowing banks to provide innovative solutions to their clients.
The wide availability and use of digital central bank money would also be important for the EU’s monetary sovereignty – particularly if other central banks around the world start developing digital currencies, for the UK example, see here. It is also important against the backdrop of the developing crypto currency market.
The proposal sets out the legal framework and essential elements of the digital euro, which would enable the European Central Bank to introduce a digital euro that it widely usable and available. It will be for the ECB to decide if and when to issue the digital euro. This project will require significant further technical work by the ECB.
Chapter V of the Regulation sets out rules governing the access to and the use of the digital euro outside the euro area, for non-euro area member states and third countries. UK readers will be interested int he fact that access to and use of the digital euro by third countries is intended to be possible, subject to two conditions:
- the EU and the third country conclude an international agreement, and the third country commits to various conditions; and
- the European Central bank and the non-euro area national central bank enter into an arrangement that specifies the necessary implementing measures.
The proposal also says that the digital euro should not be programmable money, which means units that, due to intrinsically defined spending conditions, can only be used for buying specific types of goods or services, or are subject to time limits after which they are no longer usable. As a digital form of the single currency, the digital euro should be fully fungible.
The proposal will now by debated by the European Parliament and the Council.
