In a move that reflects a strategic trend to boost European financial independence, EU lawmakers on Tuesday voted on the regulatory framework for the digital euro project, in an effort to reduce reliance on the dominant U.S. payment systems and assert the old continent’s monetary sovereignty.
Towards an independent European payment system
The digital euro represents an ambitious vision for the EU to provide a unified local alternative to electronic payments, both in stores and online. The project, first launched by the European Central Bank in 2020, aims to create an efficient and private payment system, while reducing the increasing dominance of U.S. companies such as Visa and Mastercard, as well as mobile payment systems such as Apple Pay and Google Pay.
This trend comes amid a growing European realization that propulsion systems are not just neutral technical means, but “power tools,” in the words of the centrist European Parliament’s MP, Gilles Boyer. European officials have cited recent U.S. measures as evidence of the influence U.S. companies have, including instances of loss of access to key financial services such as Visa cards.
The mechanism of action of the digital euro
Unlike money deposited in traditional bank accounts, the digital euro will be stored in an independent electronic wallet, and will carry the same value as conventional cash and securities. It will require opening an account with a bank or accredited institution such as post offices, and then transferring funds to it.
Officials maintain that the system will keep users private, while allowing offline transactions, providing a similar level of protection to cash. Alessandro Giovannini, an adviser to the European Central Bank’s director of the Euro-Digital Project, said the digital currency “will not replace any existing means of payment, and cash will remain available.”
Cost and Opposition Challenges
Despite the political support of the project, European banks are holding it, mainly due to the high implementation costs. A study by the European Banks Union in April estimated the cost of adapting banking systems to the digital euro at 18 billion euros, while the European Central Bank believes that the actual costs will range from 4 to 5.8 billion euros only.
Banks also express concerns that deposits could move from the traditional banking system to digital wallets, which could affect their financial stability. But the European Central Bank rejects these concerns, stressing that the design of the system will limit large deposit inflows, even in exceptional circumstances.
Schedule and next steps
The European Central Bank is looking to make the digital euro available to citizens by 2029, provided that a political agreement is reached on the legislative framework before the end of this year. If this schedule is adhered to, the Bank will launch a pilot program in mid-2027 to test its practical use mechanisms, as this period will represent an opportunity for banks and traders to adapt and ensure a smooth launch of the project.
Source: https://bit.ly/4eIi9xO
