The European Parliament’s Committee on Economic and Monetary Affairs has approved its negotiating position on legislation to establish the digital euro, bringing the European Union a step closer to introducing a digital version of its single currency as part of wider efforts to modernize the bloc’s payments system. The draft legislation secured the backing of 43 committee members, with 14 voting against and one abstaining, forming part of a broader package of three legislative files aimed at shaping the future of the EU’s monetary framework.
If ultimately adopted, the digital euro would serve as an electronic form of central bank money issued by the European Central Bank (ECB). Unlike privately issued cryptocurrencies such as Bitcoin, whose prices fluctuate, the digital euro would be fully backed by the ECB and maintain the same value as physical euro notes and coins. European officials have consistently emphasized that the digital currency is designed to complement cash rather than replace it, offering consumers an additional secure option for everyday transactions.
How it works
The proposal would give all euro area residents access to a public digital payment method while reducing Europe’s dependence on international payment card networks and reinforcing the region’s payment sovereignty. Supporters also believe it could increase competition in the digital payments market as electronic transactions continue to become more common across Europe.
Under the proposed framework, online payments would be processed through an account-based system, while offline transactions could be completed through local storage devices, allowing payments even without an internet connection. Banks and financial technology companies would distribute the digital euro, making it available for electronic and direct payments throughout the euro area. For users, paying with the digital euro would resemble using an existing digital wallet or banking app, except the funds would represent a direct claim on the ECB rather than a commercial bank, a feature policymakers believe could strengthen confidence during periods of financial instability.
Built-in safeguards
To protect financial stability, the legislation includes measures intended to prevent large-scale movements of deposits from commercial banks into the digital euro. Under the proposal, the European Commission would set a maximum amount that individuals could hold in digital euros based on recommendations from the ECB, with the limit reviewed at least every two years. Companies would also be prohibited from holding digital euro balances for more than 24 hours, reinforcing its intended role as a payment instrument rather than a savings vehicle. The digital euro would not earn interest and would be provided free of charge to users, reducing incentives to shift deposits away from traditional banks.
The initiative reflects a broader global trend as central banks increasingly explore central bank digital currencies (CBDCs) in response to growing demand for digital payments. While several countries have already launched or tested their own digital currencies, the European Union is seeking to develop a system that balances innovation with privacy, consumer protection, and financial stability. Subject to approval by the European Parliament’s plenary session, negotiations between Parliament, the Council of the European Union, and the European Commission are expected to begin next month, with the institutions aiming to finalize the legislation before year-end. Even then, the ECB would still need to decide whether and when to issue the digital euro, meaning it is unlikely to enter circulation immediately.
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