The European Central Bank (ECB) has initiated a two-year project for the "digital euro," commencing a preparation phase in November, following a two-year exploration period. The decision to move forward with the digital euro mirrors actions taken by over 100 global central banks in response to the rapid decline in cash use and the growing popularity of cryptocurrencies such as Bitcoin.
The ECB's governing council, led by President Christine Lagarde, will make a final decision on the issuance and rollout of the digital euro after this two-year phase. The digital currency is designed to serve all digital transactions within the euro area. It would offer comprehensive digital payment services including person-to-person, point of sale, e-commerce, and government transactions while respecting privacy, promoting financial inclusion, and reducing environmental footprint.
This electronic form of euro will be held in a digital wallet and coexist with physical cash. It is intended to serve as a free-of-charge option for all digital payments while meeting the highest privacy standards. The ECB views the digital euro as a safe alternative to volatile cryptocurrencies like Bitcoin and a pan-European solution against foreign payment giants such as MasterCard, Visa (NYSE:V), and PayPal (NASDAQ:PYPL).
Despite concerns from critics like Erick Lacourrege of the Bank of France about customers moving funds to digital euro accounts, proponents argue that it will ensure payment "sovereignty" in the eurozone and prevent dominance by non-European big tech companies or private non-EU entities.
Central bank digital currencies (CBDCs) are already being used in countries like China, India, and Nigeria. Meanwhile, the U.S. Federal Reserve is contemplating a similar initiative. Access to these services would be through a payment-service provider's app or an app provided by the Eurosystem.
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