Roadblocks Piling Up for the Digital Euro

The digital euro, first proposed in 2020, is now eyed for a potential launch by mid-2029. European Central Bank Executive Board member Piero Cipollone suggested this timeframe this week.

By year-end, we should arrive at an agreement among member-states regarding the general approach,” stated Cipollone. The ECB’s Governing Council began advance work on the digital euro in 2020, envisioning it as a supplement to cash rather than a replacement. In 2023, it entered a preparation phase focusing on technical development and drafting legislation to ensure privacy and anti-money laundering compliance.

Obstacles Continue to Arise

Despite these efforts, significant obstacles persist. Many lawmakers question the necessity of a digital euro and are uncertain about its cost-benefit ratio.

The European Parliament must pass legislation for the project to progress, but it has been slow in doing so. Fernando Navarrete, former central banker leading negotiations on the digital euro’s legal framework with the Parliament, is a long-time skeptic of digital currencies. His recent paper, Do We Really Need a Digital Euro: A Solution to What Problem Exactly?” raises questions about its necessity.

Disagreements among EU nations over how the digital euro should be issued and individual holding limits remain major hurdles. Governments worry that unlimited holdings could lead to bank runs, making cap-setting critical.

Privacy Concerns

The framework will allow tracking of digital euro ownership for fraud and money laundering prevention, but this has sparked privacy concerns in Germany and the Netherlands. There are also discussions on whether banks should charge for distributing the currency and ensuring it remains compatible across various payment systems.

The ECB recommends legislation requiring all payment services providers to support the digital euro.