The launch of the digital euro could transform the European payments landscape, but will it be the innovation many anticipate?
In an era where digital transactions are the norm, the European Commission’s decision to launch the digital euro proposal alongside the European Central Bank (ECB) in October 2023 has set the stage for a financial revolution. The initiative aims to bring a central bank digital currency (CBDC) into the hands of approximately 350 million Europeans, offering a digital version of the euro that would be treated as legal tender across the Eurozone.
As the world increasingly embraces cashless transactions, the need for a secure and universally accepted digital currency has never been more apparent. In countries like Malta, where cash payments have historically been among the highest in the EU, the shift towards digital is already evident. Data from the ECB show a significant reduction in cash transactions, with Malta experiencing a 10 percent drop between 2022 and 2024—one of the sharpest declines in the Union.
Yet, some critics argue that the digital euro may not offer anything truly new. With a multitude of private digital payment methods already in widespread use, including credit and debit cards, mobile apps, and bank transfers, the digital euro might appear redundant. These systems already allow consumers to make online and offline payments efficiently. However, experts believe that the key difference lies in the stability and security that only a government-backed digital currency can provide.
The digital euro would offer the same level of safety as traditional banknotes, making it a reliable alternative for transactions. It would be fully backed by the ECB, ensuring that it is universally accepted and trusted. Unlike private digital money, which is subject to market fluctuations and liquidity risks, the digital euro would be intrinsically secure.
Joachim Nagel, President of the Deutsche Bundesbank, recently spoke about the potential advantages of the digital euro. “For consumers, it provides a safe, free, and widely accepted digital payment method. For banks, it presents an opportunity for innovation, with minimal risk of deposit migration,” he explained. He also pointed out that merchants would benefit significantly. Currently, retailers are often pressured to offer multiple payment options, many of which incur high fees. The digital euro, he argues, would increase competition in the payments market, allowing merchants to negotiate lower transaction costs with private payment service providers.
One of the most strategic aims of the digital euro is to reduce Europe’s dependence on international card networks, particularly those dominated by US companies such as Visa, Mastercard, and American Express. With tensions between the EU and the US at a peak, the ECB sees the digital euro as a step towards strengthening Europe’s financial autonomy and enhancing the global role of the euro.
While the digital euro is still several years away from launch, with full implementation anticipated by 2028, the anticipation surrounding its potential benefits is palpable. It promises not only to improve payment efficiency but also to promote financial inclusion, offering a digital payment solution to millions of Europeans who remain excluded from traditional banking services.
In conclusion, while the digital euro may not be an entirely novel concept, its launch will mark a significant step forward in digital finance. By providing a safe, state-backed alternative to private digital money, it could reshape the way Europeans engage with money, ensuring broader access to financial services and greater stability in the payment system.
