Donald Trump seeks to establish the USA as a leader in cryptocurrency amidst rapid growth in virtual currencies, while Europe advances plans for a digital euro. The European Central Bank’s initiative aims to create a secure and private digital currency that complements cash, with a potential launch in 2027 or 2028. The digital euro will be central bank-controlled, contrasting with decentralized cryptocurrencies, and aims to enhance payment sovereignty and competitiveness against major American payment services.
Donald Trump aims to position the USA as the global leader in cryptocurrency, while virtual currencies are witnessing unprecedented growth. Meanwhile, Europe is advancing its initiative for a digital euro. What is the current status of this project?
Understanding the Digital Euro
The digital euro, also referred to as E-Euro or D€, is an initiative endorsed by the European Central Bank (ECB) in July 2021, intended to explore the potential introduction of digital central bank money. This digital currency aims to provide a free payment option that functions both online and offline. Rather than replacing traditional cash, it is designed to serve as a complementary digital alternative with similar characteristics to cash.
Consumers will be able to access the E-Euro through an electronic wallet, which would be backed by a dedicated central bank account yet managed by their commercial banks. Discussions are ongoing regarding an individual holding limit, potentially set at 3,000 euros.
Timeline for Introduction
The introduction of the digital euro appears likely based on recent communications from the ECB and the EU Commission, although a final decision is still forthcoming. Following a two-year investigation phase, the ECB initiated a two-year preparatory phase in November 2023, which includes extensive coordination processes.
According to the ECB, “The ECB Council will decide on the possible issuance of a digital euro only after the relevant legal provisions have been adopted.” This indicates that a definitive decision could be anticipated as early as the first half of 2026, with the actual launch potentially occurring in 2027 or 2028.
Plans from the EU suggest that the euro will be available in the form of ‘digital cash’ in the coming years.
How It Differs from Traditional Cashless Payments
In the realm of electronic transactions, such as transfers and debit card payments, euro amounts are already transferred digitally. So, what sets the digital euro apart?
The digital euro promises enhanced security compared to existing payment systems, as it would be insulated from crises affecting commercial banks or private payment service providers. Additionally, the ECB highlights that the E-Euro would ensure greater privacy, as no personal data is transmitted during transactions, offering an anonymity level akin to cash.
Transferring balances directly between central bank accounts could also result in cost savings compared to current payment models that rely on third-party service providers.
Comparison to Cryptocurrencies
A key distinction between the digital euro and cryptocurrencies like Bitcoin or Ethereum is that the digital euro will be generated through monetary creation by the ECB, thus remaining under central bank control. The ECB’s management of the money supply aims to maintain currency stability.
This control is a primary reason why critics of the traditional currency system advocate for cryptocurrencies, which largely operate outside the influence of central banks.
Importantly for consumers, the European digital currency will be recognized as legal tender, similar to cash and traditional bank deposits. Merchants will generally be required to accept the digital euro, whether at checkout or online, a requirement that does not apply to cryptocurrencies.
Motivations Behind the Digital Euro
Beyond the advantages for consumers, EU institutions have broader objectives for the digital euro. Primarily, it aims to safeguard European payment transaction sovereignty, as both cryptocurrencies and planned virtual currencies from nations like the UK, China, and the USA pose a long-term threat to the euro’s dominance as a payment method.
The E-Euro could also serve as a counterbalance to major American payment service providers such as Visa, Mastercard, GooglePay, ApplePay, and PayPal.
“The digital euro would enhance resilience, competitiveness, and innovation within European payment transactions,” states the ECB. “It would ensure a unified payment solution across the euro area, governed by a European regulatory framework.”
Discussions are also underway regarding monetary policy flexibility. As E-Euros would be stored in separate accounts, it would be possible to set different interest rates for them compared to traditional cash and bank deposits. In extreme scenarios, punitive interest rates on E-Euros could be utilized to stimulate consumption and invigorate the economy.
The European Central Bank has officially approved the next steps towards the realization of a digital euro.
Private Banks’ Perspectives on the Digital Euro
While the private banking sector generally supports the idea of a European E-currency, it harbors several concerns. It is anticipated that the money customers hold in digital currency may reduce the deposits available to banks and savings institutions, potentially impacting their traditional lending operations. As a result, discussions regarding caps on the digital wallet are taking place due to concerns about money laundering.
Moreover, the digital euro represents an independent payment system, positioning the ECB as a direct competitor to banks and private payment providers. Ongoing coordination processes are in place to determine the final distribution of roles in this new landscape.