Europe is on the brink of a significant change in how we use money. The European Central Bank is developing a digital euro, a project that could reshape payments, banking, and financial services across the continent. For businesses operating in or with the eurozone, understanding what’s coming and how to prepare is becoming increasingly important.
Why Europe Wants a Digital Euro
The Central Bank Digital Currency (CBDC) – the digital euro – represents the ECB’s response to a world where physical cash is being used less and less, whilst digital payments continue to grow. The idea is straightforward: just as people can currently hold euro banknotes issued by the central bank, they would also be able to carry digital euros on their phones or other devices. The concept isn’t about replacing cash, but instead providing a digital equivalent that sits alongside it.
The driving forces behind this initiative are both practical and strategic. As more payments move online and through mobile devices, Europe’s policymakers are concerned about maintaining monetary sovereignty. Currently, many digital payment systems are run by companies based outside Europe, which creates dependencies that some view as risky. A digital euro would offer a European alternative, ensuring that the continent isn’t entirely reliant on foreign payment infrastructure.
There are also questions of resilience and inclusion. If private payment systems were to fail or become unavailable, a digital euro backed by the central bank would still function. The plans also include offline capability, meaning the digital euro could work without an internet connection, making it accessible to people in areas with poor connectivity or during technical outages.
Where Things Stand Now
The ECB has been working on this project since 2020, and it has just completed its preparation phase, which ran until October 2025. During this time, the ECB has been developing the technical standards, testing infrastructure with over 70 market participants, and working with EU legislators to create the necessary legal framework.
The legislative process is moving forward as well. Because existing EU law only covers physical cash, the European Commission proposed new legislation in June 2023 to enable the digital euro. The European Parliament and Council are now working through this proposal, with key votes expected in 2026. If everything proceeds according to plan, a pilot phase could begin in 2027 or 2028, with potential public availability around 2029. However, delays in either the legislative process or technical readiness could push this timeline back.
Two Different Visions
Whilst there’s broad agreement that Europe needs to modernise its payment systems, there are different views on how ambitious the digital euro should be. The Commission and the ECB have proposed a comprehensive model in which the digital euro would be widely available for everyday use, both online and offline, distributed through banks and payment service providers. Under their vision, merchants would generally be required to accept it, much like they accept cash today.
However, some members of the European Parliament, particularly ECON Committee Rapporteur Fernando Navarrete Rojas, favour a more cautious approach. His proposal distinguishes between an offline version, which would work device-to-device like digital cash, and an online version that would only be introduced if private European payment initiatives fail to develop. This model prioritises giving the private sector space to innovate while keeping the digital euro as a backup option.
The rapporteur’s concerns centre on competition and the banking sector. He worries that a fully developed digital euro could give the ECB an overly dominant role in retail payments and potentially harm banks by drawing deposits away from them. His alternative seeks to balance innovation with financial stability, though critics argue it might undermine the strategic goal of creating a truly sovereign European payment network.
The Money Question
Any major infrastructure project comes with costs, and the digital euro is no exception. The ECB estimates it will need around €5.8 billion for the initial introduction, with development costs to 2029 of about €1.3 billion and annual operating expenses of roughly €320 million. However, banking industry estimates suggest the total costs across the sector could be considerably higher, potentially reaching €18 to €30 billion.
The costs raise essential questions about who pays for what. The ECB has indicated it wants a cost-recovery model in which banks and payment service providers recover their costs through fees or other forms of remuneration. But the details of how this will work in practice, including how to incentivise distribution and how costs compare with those of existing payment systems, remain subjects of active discussion.
There’s also the question of what happens to bank deposits. If people can hold digital euros directly with the central bank, will they withdraw money from commercial bank accounts? To prevent this kind of disintermediation, the current proposals include holding limits of around €3,000 per person, and digital euros wouldn’t earn interest. Additional measures might include disincentives for holding amounts above certain thresholds. Getting this balance right is crucial for maintaining both public trust and financial stability.
Privacy and Practicality
Privacy is perhaps the most politically sensitive aspect of the entire project. The proposed design tries to strike a careful balance. Banks and payment service providers would handle customer identification and transaction monitoring, as they do now, but the ECB itself wouldn’t have access to individual transaction data. For offline transactions using local device storage, small payments could offer near-cash levels of anonymity.
This approach attempts to satisfy both those who want strong privacy protections and those concerned about money laundering and financial crime. The offline functionality also supports broader financial inclusion goals, with plans for features such as voice guidance, high-contrast displays, and physical service points to ensure accessibility for all users.
What It Means for Competition
The digital euro would create a public payment option alongside private systems, with both advantages and risks. On the positive side, it could strengthen European autonomy, potentially lower fees, and reduce dependence on payment networks based outside the EU. It might also spur innovation and create opportunities for interoperability with other countries’ digital currencies.
On the other hand, there are legitimate concerns about whether a central bank-backed option might crowd out private innovation. The ECB has said it won’t create “programmable money” with built-in restrictions on its use. Still, the mere presence of a public alternative is likely to reshape the competitive landscape in European payments.
Different Impacts for Different Players
The approach ultimately adopted will affect various stakeholders differently. For banks and payment service providers, the Commission’s more centralised model offers predictability and standardised fees, making it easier to plan and manage. The parliamentary rapporteur’s more flexible approach would create more competition but also require stronger risk management.
For merchants and consumers, the Commission’s proposal means uniform adoption and potentially lower costs, whilst the alternative offers more choice and potentially more tailored services. Both approaches aim to provide secure, government-backed payments, but through different routes.
Looking Ahead
The digital euro represents more than just a new payment method. It’s part of a broader question about how Europe’s monetary system should evolve in an increasingly digital world. The different approaches being debated reflect a fundamental policy choice: should the digital euro be a comprehensive retail payment instrument that supports monetary sovereignty and innovation, or should it be a more limited backup mechanism that leaves more space for private-sector solutions?
For businesses, financial institutions, and payment providers operating in Europe, these decisions will have real consequences. The timeline may still seem distant, with full implementation potentially not arriving until the end of the decade, but the preparation phase is already underway. Understanding the direction of travel, the likely regulatory requirements, and the competitive implications will be essential for strategic planning.
The debate over the digital euro’s design is ongoing, and the final model will emerge from negotiations among the European Parliament, the Council, and the Commission over the coming months. What’s certain is that Europe’s payment landscape is changing, and staying informed about these developments isn’t optional for those with interests in European financial services.
How We Can Help
At SEC Newgate, we help organisations navigate complex EU policy developments and understand their business implications. Whether you’re a financial institution preparing for the digital euro, a technology provider exploring opportunities, or a business concerned about compliance requirements, our team can provide tailored guidance on this evolving landscape.
If you’d like to discuss how the digital euro might affect your organisation or need support engaging with EU policymakers on this issue, please get in touch. We’re here to help you stay ahead of regulatory change and turn policy developments into strategic opportunities.