For decades, Europeans have relied on American companies like Mastercard and Visa to power their everyday payments. Now, the EU is asking whether it needs its own alternative — in the form of the Digital Euro. The Digital Euro represents a potentially disruptive instrument for the European economy. It would allow people who reside in the Eurozone to open an account directly with the European Central Bank (ECB), thereby creating a digitalised form of public money that would coexist with traditional coins and banknotes and compete with the private payment systems currently in use. The final decision on whether to launch this instrument rests with the ECB; however, the Frankfurt institution can only issue a Digital Euro once the EU co legislators — the European Parliament and the Council of the European Union — have adopted an ad-hoc legislative framework. Based on recent developments around the digital currency, such a framework could be approved by the end of 2026, thus enabling the ECB to make the instrument operational by 2029.
What has pushed the Digital Euro onto the EU’s agenda and how would it work in practice?
European institutions began to consider issuing a Digital Euro in the late 2010s. The decision to explore a euro area Central Bank Digital Currency (CBDC) was driven by three factors: the gradual decline in the use of cash, the launch of similar initiatives by other countries — most notably China — and the expansion of the cryptocurrency sector. In particular, with regard to the evolution of the crypto phenomenon, the ECB was likely driven by Facebook/Meta’s potential launch of its own digital currency (Libra, later renamed Diem): an instrument — eventually abandoned in 2022, largely due to opposition from the US administration at the time — that would have marked the entry of a private company capable of reaching billions of people into a domain historically reserved for States. The Digital Euro was therefore seen by EU institutions as a tool to respond to the growing digitalisation of finance and to the various attempts by the private sector to ‘intrude’ into the monetary sphere.
The ECB has been in the driver’s seat for constructing this instrument. Indeed, through the establishment of a Digital Euro Taskforce, the ECB has progressively mapped the contours of the digital currency, outlining the overall design and key features the instrument should have. Legally, however, the ECB cannot issue a digital currency without a legislative mandate, a requirement set out in Article 133 of the Treaty on the Functioning of the European Union (TFEU). To this end, the European Commission presented a regulation proposal on the matter in June 2023. After a prolonged stalemate — partly due to European Parliament elections — the process gained momentum following Donald Trump’s re-election to the White House, throwing Europe’s dependence on American payment providers into sharp relief. After months of negotiations — and resistance from various actors, including the proposal’s own Parliament rapporteur, Navarrete Rojas — EU institutions appear to have reached a broad agreement on the need to issue a Digital Euro and on its main features, as evidenced by the positions recently adopted by the Council and the European Parliament.
In practical terms, the Digital Euro would function like a current account directly with the ECB, allowing holders to receive and make payments — both online and offline, at no cost, around the clock, and with immediate settlement. Like cash, it would enjoy legal tender status, meaning merchants would be required to accept it. The Digital Euro’s infrastructure would be managed by the ECB, while distribution would take place through commercial banks and other financial intermediaries, which would carry out onboarding procedures — including know your customer checks — similar to those required for ordinary bank accounts. To prevent a large-scale shift of funds out of the banking system, holding limits would cap the amount that can be stored in a Digital Euro wallet; linked bank accounts would manage these limits automatically, topping up or draining wallets as needed through so-called waterfall and reverse-waterfall mechanisms.
The Digital Euro is often discussed as a single project, but your research shows that many details are still fiercely contested. What are the key fault lines in the debate, and what is at stake in getting the design right?
The debate around the Digital Euro has been intense since the beginning. Chief among the concerns is financial stability — specifically, the risk that a vast amount of funds could exit banks, diminishing their financial soundness and their ability to lend to households and firms. The ECB anticipated this issue from the outset, designing the holding limits described above in its progress reports during the investigation phase (2021–2023). In its regulation proposal, the European Commission largely followed the approach outlined by the Central Bank, confirming the application of holding limits on Digital Euro deposits. In addition, however, the Commission — again with the aim of limiting financial stability risks — established that CBDC deposits would not bear interest. This choice weakens the potential of the Digital Euro as a monetary policy instrument and reduces its attractiveness for citizens, given that bank deposits, by contrast, are remunerated. The ECB, in an opinion published in October 2023, contested this provision and called for its removal; nevertheless, in what appears to be the emerging institutional consensus, the interest ban looks set to survive in the final legislative text.
At the same time, the Council’s proposal text from December 2025 raises its own concerns, particularly on who gets to set these holding limits. Under the agreement reached by EU finance ministers, it is the Council — once the ECB has issued a recommendation — that would determine the maximum amount that can be held in Digital Euro wallets. This provision would restrict the autonomy of the Frankfurt institution on digital currency matters, shifting assessments related to financial stability to the deliberations of national government representatives. These national governments lack the ECB’s level of technical expertise on monetary issues, often act slowly, and are far more exposed to lobbying by actors who would prefer to see the Digital Euro weakened or fail altogether.
How does the Digital Euro fit into the EU’s pursuit of strategic autonomy, and what would its success or failure mean for Europe’s role in global monetary governance?
The Digital Euro could certainly represent a valuable innovation for advancing European strategic autonomy in the financial domain. A CBDC issued by the ECB would create a genuinely European payment infrastructure that could complement the fragmented national systems operating across the various member states. In particular, in the field of card/contactless payments — where no EU-based private operator of continental scale exists — the Digital Euro would offer an alternative to the American providers that dominate the market (e.g., Visa and Mastercard). Indeed, as noted above, Trump’s re-election makes the risks of that dependence harder for Europe to ignore. At the same time, the euro area CBDC would make it possible to respond to the spread of stablecoins — cryptocurrencies whose value is tied to a specific asset through reserves held by the issuers — and of payment applications (such as PayPal), offering European residents and businesses an immediate, 24/7 solution for transferring funds.
In the field of contactless payments — where no EU-based private operator of continental scale exists — the Digital Euro would offer an alternative to the American providers that dominate the market.
The Digital Euro could also strengthen the euro’s global standing. As CBDCs proliferate worldwide, new payment infrastructures will be needed to ‘connect’ them internationally. By being at the forefront of this process, the ECB could better shape these new networks and try to position the Euro as a credible international reserve currency — a prospect that looks more attractive now that the Trump administration has shelved the Digital Dollar project. However, it would be a mistake to assume that the Digital Euro alone can drive the global expansion of the European currency: the euro’s role as an international reserve currency remains constrained by financial fragmentation across member states and the absence of a European safe asset — such as the so called Eurobonds — that could serve as a genuine alternative to US Treasuries.
Matteo Bursi is an ENSURED researcher and part of Istituto Affari Internazionali (IAI)'s Multilateralism and Global Governance programme.
Photo: Immo Wegmann/ Unsplash
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