Digital euro: a progress report
The digital euro project aims to make central bank money available digitally, mirroring the features of banknotes. A two-year preparation phase began on November 1, 2023, with a decision on issuance expected by the end of 2025, pending legislative framework adoption. Progress so far includes:
- Rulebook development: The Rulebook Development Group (RDG) reviewed the first draft of the digital euro rulebook, incorporating around 2,500 comments. New workstreams focus on user experience, risk management, and certification frameworks.
- Provider selection and experimentation: The ECB is selecting providers for the digital euro platform and conducting user research and technical experimentation to inform decision-making. User research began in September 2024, with results expected in mid-2025.
- Design and holding limit: The ECB is developing a methodology to calibrate the digital euro holding limit, balancing user experience with financial stability. An offline digital euro solution is being explored for mobile devices.
- Stakeholder engagement: Extensive engagement with stakeholders, including market participants, policymakers, and the public, is ongoing to ensure the digital euro meets all needs.
Digital Euro – Progress report
By: ECB
The pros
On March 20, 2025 Philip Lane, member of the executive board of the ECB, gave a speech on the digital euro and why it is an important project at the ECB. He argued that the digital euro is positioned as a strategic imperative to preserve monetary sovereignty, enhance financial inclusion, and ensure Europe’s economic autonomy in an increasingly digital and geopolitically fragmented world. Below is a summary of the key points he made:
The case for a digital euro:
- The modern monetary system faces challenges from increasing digitalization, new forms of private digital money like stablecoins, and closed digital ecosystems created by tech companies.
- These trends could disrupt the two-tier monetary system (central bank money and commercial bank money) and threaten central bank monetary sovereignty.
- The digital euro is presented as a necessary response to preserve monetary autonomy in an increasingly digital world.
Key benefits:
- Preserves public access to central bank money as cash use declines
- Counters the dominance of foreign digital currencies and stablecoins
- Provides a pan-European payment solution, addressing fragmentation in the euro area
- Enhances privacy and data protection compared to private payment solutions
- Strengthens Europe’s strategic autonomy in an increasingly multipolar monetary system
Implementation considerations:
- The digital euro would be designed to complement, not replace, existing payment systems
- Limits on holdings would be implemented to prevent disruption to the banking system
- It would serve as a catalyst for innovation in the European payments landscape
The digital euro: maintaining the autonomy of the monetary system
By: Philip Lane – ECB
…and the cons
Volker Brühl, delves into the multifaceted implications of introducing a digital euro—a central bank digital currency (CBDC)—on the European banking sector. The analysis is grounded in theoretical foundations, empirical data, and simulation models to assess the economic, financial, and technical impacts of such an innovation. Below is a concise summary of the main challenges and risks discussed in the paper.
- Bank disintermediation: The introduction of a CBDC could lead to deposit withdrawals from commercial banks as customers shift funds into digital euro wallets. This substitution could reduce banks’ ability to finance their operations through retail deposits.
- Profitability impact: Banks may face significant losses in transaction fees if the digital euro replaces existing fee-bearing instruments like card payments or e-money transactions. Annual fee losses are estimated between €2.1 billion and €4.2 billion.
- Refinancing costs: To compensate for lost deposits, banks would need to rely on more expensive funding sources such as bonds or ECB refinancing facilities. This could increase annual refinancing costs by €6.5 billion to €19.5 billion.
- Financial stability risks: Easy access to CBDCs during economic crises might exacerbate bank runs as customers quickly move funds from commercial banks to safer central bank-backed assets.
Using current market data on retail payment behavior and funding spreads, Brühl simulates the economic impact of the digital euro:
- Fee losses due to substitution rates ranging from 2.5% to 20% over ten years.
- Increased refinancing needs between €324 billion and €650 billion.
- Total annual costs (fee losses + refinancing costs) between €8.6 billion and €23.8 billion under moderate adoption scenarios.
Conclusion
The findings underscore that a fair compensation model for banks and payment service providers (PSPs) for their role in distributing and maintaining the digital euro ecosystem, is crucial to ensure their resilience amidst potential fee losses and increased refinancing costs resulting from deposit disintermediation caused by the adoption of a digital euro.
The digital euro – implications for the European banking sector
Author: Volker Brühl
From: Center for Financial Studies (CFS)
