HNB: The planned introduction of the digital euro does not mean the abolition of cash

The introduction of the digital euro, which could be implemented as early as 2028, does not mean the abolition of cash, banknotes, and coins of the euro – on the contrary, the regulation of the European Parliament will further ensure the status and security of cash usage, emphasized the Croatian National Bank (HNB) on Wednesday.

Given the increased interest from the public, citizens, and the media, the HNB reiterated that the planned introduction of the digital euro does not mean the abolition of cash, banknotes, and coins of the euro.

– The role of cash has been significantly discussed in public in recent years, especially because the rise of digital payments, caused by the coronavirus pandemic, has reduced its share in everyday transactions, raising concerns about its future. However, the demand for cash has remained strong across all age groups – stated the HNB.

The results of the 2024 research on consumer payment habits in the euro area also show that Europeans want to retain the option of cash payments and expect it to remain available in the future. In this context, the HNB notes that the European Central Bank (ECB) and the European Commission are working on strategies to protect euro cash and adapt it for the future.

In June 2023, the Commission announced the Single Currency Package, which includes two key legislative proposals – one to protect the status of euro banknotes and euro coins as legal tender (Regulation on euro banknotes and euro coins as legal tender) and the other for the digital euro (Regulation on the digital euro).

The digital euro, euro banknotes, and euro coins will complement each other

The digital euro, euro banknotes, and euro coins will complement each other, expanding the range of available payment options by offering cash in both physical and digital forms, the HNB emphasizes. They also state that the ECB, as well as the HNB, supports the proposal of the Commission’s regulation that governs the status of euro banknotes and euro coins as legal tender. They explain that this regulation will clearly establish that merchants and service providers must generally accept cash, except in exceptional cases, for example, if another payment method has been agreed upon in advance.

The regulation will also obligate euro area member states to ensure that citizens and businesses have sufficient places to withdraw and deposit cash, for example, through ATMs, bank branches, or other channels, so that cash remains easily accessible to everyone, including those who rely solely on it.

– The goal is to preserve cash as an inclusive, safe, and reliable means of payment, which will stand alongside digital forms of payment in the future – the HNB states.

Additionally, the ECB has launched a competition for the design of a new series of euro banknotes, which will be more modern and secure. This further demonstrates the ongoing commitment to the future of cash and its key role as a reliable means of payment and a store of value, both within the euro area and beyond, the HNB says.

Cash plays a key role in maintaining the resilience of payment systems

They also note that the use of cash achieves financial inclusion and plays a key role in maintaining the resilience of payment systems and economies. In times of crisis, such as during cyberattacks or power outages, cash is a reliable alternative, as seen during natural disasters that affected parts of the euro area last year.

– The Eurosystem is therefore committed to ensuring that cash remains a widely available and accepted means of payment for all residents of Europe – they state.

They also point out that the proposal for a regulation by the European Parliament and Council on euro banknotes and euro coins as legal tender has been drafted and is currently in the phase of alignment among member states. The European Parliament is expected to adopt this regulation and the regulation on the introduction of the digital euro by the end of this year.

The HNB reminds that the digital euro is digital money that would be issued by the Eurosystem – the European Central Bank (ECB) and the national central banks of those EU member states that have adopted the euro. The idea of introducing the digital euro as central bank digital money for citizens of the euro area arose in response to the growing demand for secure and reliable electronic payments in Europe.

Privacy is one of the most important features of the digital euro

Citizens would use the digital euro in everyday transactions and would pay using a card or mobile application or any third medium that meets the technological requirements set by the legislative proposal at the time of the digital euro’s issuance and is also simple and secure to use. It will be accessible, reliable, secure, efficient, and made in accordance with the law, and its use will guarantee the highest level of privacy protection, according to the HNB’s statement.

It is also emphasized that the digital euro would serve consumers for payments and would not have the function of a bank deposit on which interest is paid. – Therefore, claims that negative interest could be charged on the digital euro account are unfounded. Similarly, statements that the digital euro could influence investments by preventing investment in a specific stock/security are incorrect – the HNB states.

Consumers would be able to make secure instant payments in digital euros at physical and online points of sale and between consumers, regardless of which euro area country they are in and regardless of the payment service provider. The first step would be to open a digital euro wallet at a bank or with another licensed electronic payment intermediary. Once your digital wallet is ready, you could fund it through a linked bank account or deposit cash into it. You could then start making payments in digital euros from your digital wallet, explains the central bank.

Payments can be made with the digital euro both online and offline, meaning it can be used in situations of limited connectivity, and it can also serve as a means of payment for emergencies or unforeseen or extraordinary circumstances. The HNB particularly emphasizes that privacy is one of the most important features of the digital euro. The ECB and HNB, as the Eurosystem in their role as the owner of the payment scheme and executor of settlements for transactions in digital euros, will not be able to access or store users’ personal data, they state.

The digital euro project is currently in the preparation phase, which includes the development of technical infrastructure, legislative framework, and research on user preferences. By the end of 2025, the ECB is expected to make a decision on moving to the next phase, but the final introduction will depend on the outcome of the democratic process in the European Parliament, the HNB concludes.