On 28 June 2023, the European Commission presented a Proposal for a Regulation on the establishment of the digital euro. With the Regulation, the Commission wants to create a legal framework for the digital euro and thus counter the increased use of private digital means of payment in Europe.
The proposed Regulation is part of a package on the single currency in the EU (Single Currency Package). The Single Currency Package includes another legislative proposal to safeguard cash within the EU. It is intended to address concerns about the abolition of cash. The aim is to ensure that the use of cash continues to exist even with the introduction of the digital euro. This is particularly important in view of the fact that access to cash is necessary, especially for vulnerable groups in society, to be able to participate financially in economic life even without being equipped with digital devices.
The European Central Bank (ECB) currently issues only cash as legal tender. This includes both euro banknotes and euro coins. However, due to the ongoing digitalization in almost every area of life, more and more people are deciding to process their transactions digitally. Digital payments are made using cards and other services offered by banks or other financial companies. The key point is that traditional digital payments are in the form of scriptural money, which is merely a claim against the bank. The banks or financial companies create the digital element of these transactions when they book fiat money between the accounts of their customers.
According to the Commission, the European population should also be provided with digital central bank money. The advantage of this money would be that it would not be a deposit so that in the event of the insolvency of a bank, no claims would be lost.
The planned Regulation on the digital euro includes compulsory acceptance of the digital euro, which would oblige all private and public economic operators to accept digital euros for their services. An exclusion of the acceptance obligation in general terms and conditions would be inadmissible. Only small-scale enterprises that do not accept any other digital means of payment would be exempt from the acceptance obligation.
Payments with digital euros would be processed via bank accounts. As a result, the new digital means of payment could be transferred – as usual – with cards and between bank accounts. In principle, payment with the digital euro will be similar to payment with cash and will be treated in the same way. Accordingly, the Regulations for the prevention of money laundering and terrorist financing will also apply to payments with the digital euro.
In order to make the process and dissemination of the digital euro efficient, already authorized banks and other payment service providers would be allowed to perform payment services in connection with the digital euro. However, banks and payment service providers would have to expand and adapt their services and products to the digital euro. This would require significant restructuring within payment service providers and will need considerable input.
It should be possible to process payments with the digital euro both online and offline. In the case of offline processing, the bank will only be informed of the amount used and not of any personal data (as with conventional digital payments).
However, the Regulation on the digital euro also intends to set limits on its use. For example, the digital euro should not be used as a store of value, which would be ensured by making it inaccessible to interest. In addition, the Commission is to create an upper limit for account holders through an implementing act (according to the recent status, the limit would between be EUR 3,000 and 4,000 per person).
With the proposal of the Digital Euro Regulation, the first step in the direction of predominantly digital payment traffic in the EU has been taken. However, the road to the actual implementation, introduction, and dissemination of the digital euro is both long and uncertain: after the proposed regulation has been adapted and adopted by the European Parliament and the Council in the ordinary legislative procedure, the ECB will ultimately decide whether and when an additional legal means of payment will be created. Another decisive factor will be whether the ECB considers the digital euro to be technically feasible at all.
As the introduction of the digital euro is considered to be widely controversial, feedback on the proposed Regulation can be submitted to the Commission until 25 August 2023.
