Digital Euro – A Central Bank Digital Currency Proposed by European Lawmakers

European Lawmakers Propose Digital Euro—A Central Bank Digital Currency (CBDC) — could be in progress should a proposition by individuals of the European Central Bank and the European Commission advance.

Key TakeAway

• European legislators and overseers have put forth the idea of an e-Euro.
• An e-Euro would represent a central bank digital currency (CBDC) utilized in parallel with physical currency.
• This initiative stems from the enactment of the groundbreaking regulations for Markets in Crypto Assets in the previous year.

Easy Transactions While Protecting Privacy

Advocates of the electronic euro highlighted a decrease in physical currency usage in an increasingly digitized society and emphasized the necessity for the euro to align with digital advancements.

The suggestion stated that the CBDC would coexist with cash, with both entities being "entirely committed to ensuring the continuous acceptance" of cash within the euro zone.

The electronic euro would entail zero transaction fees, enabling users to make payments online and offline, employing a digital purse.

A noteworthy element in the proponents' strategies is the provision of a "superior level of data confidentiality compared to any other digital payment methods" via the offline purse feature. This aspect holds significance for critics of CBDCs who contend that centralized government currency would compromise privacy. European policymakers have joined their American counterparts in imposing stricter regulations on the cryptocurrency industry, with the EU passing the Markets in Crypto Assets (MiCA) legislation in April.

What Does This Mean For Users and Businesses?

The introduction of a digital euro would have far-reaching consequences for the realm of digital transactions, as highlighted by the European Commission, which acknowledges that "a small number of global corporations process around two-thirds of Europe's digital retail payments."

Digital payments often incur substantial transaction fees, which pose a challenge for small businesses and may be transferred to consumers. The European Commission itself approximates that digital payments for small-scale operators could range from 1.5% to 5% per transaction, accompanied by additional expenses ranging from five to 15 euros per transaction.

The absence of transaction costs in a digital euro could alleviate this burden for users. Nevertheless, other payment service providers such as Apple (AAPL), PayPal (PYPL), or cryptocurrency exchanges may face increased competition due to the reduced payment costs.

During a speech in November 2022, ECB President Christine Lagarde also expressed her support for a digital euro and expressed concerns about "unbacked alternatives—like Bitcoin or Ether—that exhibit excessive volatility and are unfit for serving as a medium of exchange."