The potential launch of the digital euro has garnered attention within the European Parliament, with European Central Bank (ECB) board member Piero Cipollone affirming its profitability for payment service providers. Addressing members of the economic affairs committee, Cipollone asserted that the implementation of the digital euro is unlikely to pose a risk to financial stability, but it should generate enough involvement to fund the necessary infrastructure and fairly compensate key stakeholders for their investments. He emphasized that the financial burden of integrating the digital euro into the euro area is estimated between €2.8 billion and €5.4 billion, although there are concerns about the reliability of these figures, as previous estimates have been significantly higher.
The ECB’s plan revolves around creating a retail Central Bank Digital Currency (CBDC) to serve as a modern counterpart to cash. Nevertheless, its launch hinges on member states and the European Parliament agreeing on a robust legislative framework. Currently, discussions within Parliament are stagnant, with Cipollone’s meeting marking just one of 14 that will occur over the course of deliberations. The first draft report by German MEP Stefan Berger has not progressed since February 2024, resulting in a leadership change with Spanish MEP Fernando Navarrete taking over the critical role. Navarrete has expressed skepticism about the necessity of a digital euro, questioning whether it addresses the challenges posed by European reliance on foreign payment providers like Visa and Mastercard.
In his extensive analysis, Navarrete alludes to the broader international context, suggesting that the absence of comprehensive retail CBDCs in other leading economies indicates more caution than capability. He outlines various risks associated with digital currencies, including potential financial instability, insufficient consumer demand, and ambiguous cost-benefit scenarios that have led other jurisdictions to delay or halt similar initiatives. Instead of focusing on retail CBDCs, he proposes that a wholesale approach or alternative strategies could be more beneficial, recommending an evolution in the ECB’s role to serve as a neutral facilitator in the financial landscape.
The ECB has underscored the urgency of advancing the digital euro, contingent on declining cash usage among European citizens. Cipollone noted that cash transactions have decreased significantly over the past five years, dropping from 68% to 40% of total transactions in the euro area, leading to a reinforced argument for a digital currency as a complementary alternative. He contends that having a secure digital option could bolster public confidence and safeguard citizens during crises, such as cyberattacks or geopolitical tensions, thus serving as an essential public utility akin to electricity or clean water.
Concurrently, discussions among EU finance ministers are intensifying, with the Danish presidency aiming to establish a cohesive stance on the digital euro by late 2025. However, challenges abound, with numerous governments advocating for additional technical preparation prior to endorsing the project. Ministerial concerns focus on crucial matters such as establishing a fair compensation model for banks, creating efficient distribution frameworks, and ensuring high levels of privacy protection for users from the outset. The complexities surrounding the digital euro are compounded by disagreements over its implications for non-Eurozone countries, the limits on individual holdings of the digital currency, and governance issues relating to decision-making authority regarding the project.
As the dialogue progresses, it becomes evident that while the digital euro may promise various advantages, a range of intricate issues must be navigated before it can be realistically launched. The recent dynamics in the European Parliament and the questions raised by finance ministers underscore the diversity of opinions on how to approach this potentially transformative financial tool. Construing the digital euro as a safeguard against subsequent economic vulnerabilities may resonate positively with broader societal needs, yet consensus among key stakeholders will be essential for ensuring its viability and acceptance. Ultimately, the future of the digital euro hinges not only on its implementation costs but also on its perceived necessity and functionality within a rapidly evolving financial landscape.
