The European Central Bank (ECB) recently reiterated its plans to introduce a digital euro, aiming to provide a reliable, crisis-ready payment option. However, this proposal has encountered skepticism among EU lawmakers, particularly concerning privacy safeguards and the potential impact on commercial banks.
ECB board member Piero Cipollone addressed a parliamentary economic committee, emphasizing that the digital euro would enable all Europeans to make payments anytime using a universally accepted, free digital currency, especially during significant disruptions.
Despite this defense, some parliamentarians expressed reservations. Key concerns revolve around how well the digital euro would protect user privacy and fears that central bank-backed accounts might weaken private banking sectors.
The legislation for introducing a central bank digital currency (CBDC) has been under review in the European Parliament since 2023, facing delays due to political challenges and the upcoming 2024 elections.
Digital Euro as a Crisis Backup
Cipollone highlighted that much of the EU’s current digital payment infrastructure is dependent on providers outside the EU. This reliance could limit Europe’s capacity to quickly respond and act autonomously in emergencies.
He proposed the digital euro as a dependable fallback during cyberattacks or network outages and noted ongoing U.S. initiatives promoting dollar-backed stablecoins.
Adding to this, he stated that the digital euro is intended to complement physical cash, which remains crucial for economic resilience and financial inclusion. Nonetheless, with digital payments now integral to everyday life, such capabilities are expected to be guaranteed by government frameworks.
Privacy and Banking Risks Highlighted
Some lawmakers voiced worries about the privacy implications associated with the digital euro. Additionally, they voiced concerns that citizens might prefer holding accounts with the ECB over commercial banks due to perceived security, potentially destabilizing private banking.
On the topic of privacy, Cipollone reassured that the ECB would not have access to details about either party in transactions. He also assured that the offline capabilities of the digital euro would offer privacy protection equivalent to cash.
However, Eurosceptic member Pierre Pimpie expressed concerns that the digital euro could lead to an outflow of deposits from private banks. He criticized the ECB’s authority to set caps on digital euro account balances, fearing potential increases during crises.
Cipollone responded by confirming that any such caps would be determined based on rigorous analysis. He also noted that in times of crisis, wealthy entities might quickly pivot to stablecoins denominated in other currencies, making the digital euro only a minor concern in such scenarios.
Legislative Timeline and Implementation
The ECB plans for legislation enabling the digital euro to be finalized by mid-2026. This process involves approval from the European Parliament, European Commission, and the European Council, with inter-institutional negotiations expected to take several months.
Following the legislation, the ECB anticipates designing and testing the digital euro’s infrastructure, a phase expected to last up to three years. If all proceeds as scheduled, the digital euro could launch around 2029.
For those interested, related discussions also cover the regulatory risks posed by non-EU stablecoins, a topic the ECB president has urged to be addressed.
