The European Central Bank (ECB) has announced its intention to introduce a digital version of the Euro, with a target launch date set for 2029. This decision follows the initiation of a “preparation phase” for a Digital Euro in November 2023, which the ECB has confirmed as successful.
During a recent statement, ECB President Christine Lagarde emphasized the importance of adapting the currency for future needs. When questioned about the necessity of a Digital Euro, she responded, “The key points for me are: Money is a public good; central banks are the custodians of that public good; and central money issued by central banks must have its digital form, as we are entering a new era where not everyone will prefer banknotes.”
One of the primary motivations for developing a Digital Euro is to decrease the European Union”s dependency on non-European payment service providers. Fabio Panetta, the Governor of the Bank of Italy, highlighted that European banks currently handle only one-third of digital payment activities within the Eurozone, with the remainder processed by non-European companies. He noted, “European banks have not yet reached an agreement on how to extend their services throughout the Euro area,” indicating a lack of necessary infrastructure.
Panetta believes that the introduction of a Digital Euro would enable European banks to compete effectively across the continent. He remarked, “Once the digital Euro infrastructure is established, banks will be able to utilize this open-standard infrastructure to operate on a European level, thus generating additional business and revenues, while also enhancing sovereignty and control over payment-related information.”
According to Lagarde, the ECB plans to initiate a pilot program for the Digital Euro by 2027, with an eye toward potential public use in 2029. This Digital Euro will be classified as a “central bank digital currency” (CBDC), a concept that has garnered global interest but also faced criticism. Detractors express concerns that CBDCs could infringe on privacy or civil liberties, as digital transactions inherently create records that could be monitored. Additionally, there are worries that CBDCs might be programmed to restrict purchases of specific goods or services, such as prohibiting welfare recipients from buying certain items.
Security is another significant concern, as the adoption of digital wallets must ensure they are as secure as traditional wallets. The ECB estimates the cost of launching the Digital Euro at around €1.3 billion, with ongoing operational expenses projected at approximately €320 million annually.
