Digital euro aims to win over skeptics

The European Union unveiled plans on Wednesday for the bloc to join central banks around the world in the move toward a digital version of the euro, in response to changing public spending behavior. But before it is even off the drawing board, the proposal is encountering resistance.

The idea was first floated in 2020 by Christine Lagarde, president of the European Central Bank, with supporters saying the new system would work in parallel to cash and allow the ECB to stand alongside other central banks, many of them non-European, that are already active in the field.

However, critics have questioned whether such a move is necessary, with banks expressing their concerns. There are also public fears over privacy regarding the traceability of transactions and the potential for prices to be pushed up.

"If we are just duplicating the existing payment infrastructure with the digital euro, that is not a good enough business case," Markus Ferber, German member of the European Parliament, told Agence France-Presse. "For the time being, the digital euro seems to be a solution in search of a problem."

The introduction of a digital euro would require the approval of the European Parliament and all 27 EU member states — 20 of which use the single currency, with all but one of the other seven, Sweden, having joined the bloc after the currency was introduced in 2002. If all goes according to plan, it could be operational from 2027 onward.

Reducing dependence

Earlier this year, credit rating agency Moody's said a digital euro would reduce the continent's dependence on external payment companies such as Visa and Mastercard, which has been a long-term goal for EU policymakers.

In an article published in the newspaper Times of Malta, ECB executive board member Fabio Panetta and European Commission Vice-President Valdis Dombrovskis argued the case for the new system.

"As the world's largest single market, Europe cannot afford to remain passive while other jurisdictions move ahead," they wrote. "If other central bank digital currencies were allowed to be used more widely for cross-border payments, we would risk diminishing the attractiveness of the euro — currently the world's second-most important currency after the US dollar."

The draft proposal was expected to include a limit on how much money people could keep in digital euros, with an expected limit of about 3,000 euros ($3,285).