European Commission Proposes Framework for Introducing Digital Euro

The European Commission proposed on Wednesday the establishment of a framework for the possible introduction of digital euro and a proposal to ensure mandatory acceptance of cash payments to alleviate the fears of many that digital currency could completely displace cash.

The Commission also proposed that the digital euro, an intangible currency, be granted the status of legal tender in the euro area, a status currently held only by euro banknotes and coins.

– Today’s proposals will also ensure that cash remains fully available, while allowing the European Central Bank to gradually develop the practical aspects of the digital euro – stated the Commission’s Executive Vice-President Valdis Dombrovskis.

He added that payments with the digital euro would be ‘secure and protected, instant and practical – online and offline’.

The digital euro would offer functionalities that are currently provided by cards and applications, but also allow payments without internet access, which is not possible with cards or mobile applications. The so-called offline digital euro would enable transactions without an internet connection if the other party in the transaction is physically close, whether it is a person or a store. This would also allow payments in remote areas with unreliable internet connections and in cases of lack of communication networks or power outages.

The legislative bodies in the EU, the Council and Parliament, are responsible for adopting the legal framework, but the final decision on the introduction of the digital euro is made by the European Central Bank. The Commission states that it will take several years to introduce the digital euro, and in any case, it will not be before 2028.

The digital euro would also be equivalent to cash. Unlike crypto assets, the digital euro would be central bank money. The European Central Bank would guarantee that it is safe, has stable value, and can be exchanged at face value for euro cash. In contrast, crypto assets can fluctuate significantly in value, and their exchange for euro cash cannot be guaranteed.

The digital euro could be used anywhere in the euro area, regardless of where the payers are located and which commercial bank or payment service provider they use. Payments would be possible at any time, 24 hours a day, 365 days a year.

The digital euro would also enable individuals without bank accounts to make or receive digital payments and access basic functions for free. These functions would include converting cash into digital euros and vice versa. Currently, around four million people in the EU do not have a bank account, putting them at a disadvantage as they cannot, for example, use e-commerce services.

The Commission states that the digital euro would enhance user privacy, and using the digital euro without internet access would provide user privacy equivalent to using cash.

The Commission states that the aim of today’s proposals is to ensure that those who wish to can still pay in cash, by establishing a legal obligation to accept cash, which would, among other things, prevent businesses from unilaterally introducing cashless payments.

The Commission emphasizes that the digital euro will not replace cash but will be an additional payment option.

The digital euro concerns banks, which fear a potential significant loss of revenue if individuals begin to withdraw their deposits en masse and convert them into digital euros, which, unlike banknotes and coins, would not be on their balance sheets.

Therefore, the Commission proposes to limit the amount that each individual can hold in digital currency.