Europe advances its payment alternative
The European Central Bank moved closer to introducing a digital version of the euro after securing crucial support from the European Parliament’s economic committee on Tuesday.
The proposed system would give every eurozone resident access to central bank-backed electronic money through a digital wallet. Banks and financial technology companies would distribute the service, which could be used for both online and in-person purchases.
US payment dominance raises concerns
Development of the digital euro began six years ago, but deteriorating relations between Europe and the United States have increased its strategic importance.
Donald Trump’s return to the White House and the imposition of tariffs on established partners, including the European Union, have raised fears that Washington could eventually use American control over payment networks such as Visa and Mastercard as political leverage.
“The introduction of the digital euro would… reduce overreliance on non-European providers by becoming a pan-European means of payment and would bring the single currency into the digital era by giving Union citizens the freedom to opt to pay with central bank money in their daily transactions,” the draft regulation states.
Negotiations could begin next month
The committee’s approval followed three years of disagreements between the ECB and commercial banks. Financial institutions have sought to restrict the project because of concerns about declining deposits and lost payment revenue.
Siegbert Frank Droese, representing the far-right Europe of Sovereign Nations group, said his members opposed the proposal. Their objection increases the possibility of another vote during a plenary session of Parliament.
If the proposal survives that stage, lawmakers could begin negotiations next month with the European Council and the European Commission. The institutions are seeking final approval before the end of the year.
Pilot programme planned before 2029 launch
The ECB intends to conduct a 12-month pilot beginning in the second half of next year. A complete launch is currently scheduled for 2029.
Other large economies are following different paths. China has conducted extensive trials of its digital yuan, while India and Brazil have tested their own systems. Britain remains focused on research because of concerns involving privacy, banking stability and the wider financial system.
In the United States, President Trump has prohibited the Federal Reserve from creating a central bank digital currency.
Limits designed to protect bank deposits
The parliamentary proposal contains several protections intended to prevent large withdrawals from commercial banks. The European Commission would determine how many digital euros an individual could hold, using an ECB recommendation, and would reassess the limit at least once every two years.
Companies could retain digital euros for no more than 24 hours. The currency would pay no interest and would be free for consumers to use.
ECB simulations estimate that a limit of 3,000 euros per person could transfer as much as 699 billion euros, equivalent to $795.88 billion, out of eurozone banks. That amount represents 8.2% of all retail sight deposits, with smaller lenders and retail-focused institutions facing the greatest exposure.
Commercial banks retain a central role
Laura Casonato, head of policy at Positive Money Europe, said the agreed framework falls short of creating a complete substitute for traditional bank accounts.
“The proposal reflects political compromises,” she said. “It keeps commercial banks at the centre of distribution, with only a limited role for public channels and other providers, and does not go as far as presenting the digital euro as a true alternative to bank deposits.”
These restrictions helped secure support from critics including Fernando Navarrete Rojas, Parliament’s negotiator on the legislation, who only recently withdrew his opposition to allowing online use of the digital euro.
Costs and merchant rules remain unresolved
Auke Zijlstra of the far-right Patriots for Europe Group expects negotiations to focus largely on compensation for participating companies. The ECB estimates that implementation will cost between four billion and six billion euros over four years.
Zijlstra also warned that the currency might be “obsolete” by its planned launch because of private-sector alternatives such as Wero, an instant payment platform supported by major European banks.
Damian Boeselager of the Greens argued that accepting digital euros should remain inexpensive for merchants, many of whom would be required to offer the payment option. The parliamentary text provides exemptions for small-business owners and self-employed workers.
