The digital euro wallet is coming – How it will work

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2023 will be a year of decisions for the digital euro, the digital central bank currency (CBDC) that European Central Bank chief Christine Lagarde has been fervently promoting since the beginning of her mandate in Frankfurt.

The exploration of the digital euro, which started about a year ago, is progressing rapidly and crucial decisions on the timing and framework for its implementation are expected to be taken next year.

The relevant decisions are expected to be taken in 2023 with the aim of the digital currency to premiere in 2025.

The overall design will be reviewed before the exploratory phase ends and in October 2023 the Board of Governors may take the decision to start the “implementation phase” of the digital euro, developing and testing technical solutions and business arrangements. This phase could take up to three years. In parallel, in the first quarter of 2023, the European Commission is expected to publish a proposal for a regulation to establish and regulate key aspects of the digital euro as a new form of central bank money.

According to the same sources, the digital euro will take the form of a wallet that citizens will “load” with money from their bank accounts for the purpose of carrying out transactions. The benefits of the digital euro are expected to be particularly significant. First of all, transactions in the ECB currency will be instantaneous, as is currently the case with instant payments, which take place in a matter of seconds.

In addition, the digital euro will be circulated free of charge among its users, without the – in some cases hefty – commissions currently charged by banks for direct payments. Finally, transactions will be completely secure as they will be guaranteed by the central bank.

The digital euro will coexist with banks

In order to avoid a co-movement of funds from commercial bank savings accounts to digital euro accounts, a ceiling of โ‚ฌ2,000 or โ‚ฌ3,000 is being considered, so that it can be used purely as a means of transaction and not as a means of accumulating wealth. In the same direction, the imposition of negative interest rates from a deposit amount and above is also being considered.

According to sources, Frankfurt’s aim is to ensure that the digital euro does not compete with the banking system by depriving it of the liquidity necessary for economic activity. In addition, another important concern of the Eurosystem is to maintain pluralism in the means of payment, including cash.

Lagarde: Why we are planning the digital euro

In a recent speech in Brussels, the ECB President confirmed the progress made to date thanks to the involvement of the European Commission, the European Parliament, Eurozone finance ministers and market participants such as merchants, consumers and intermediaries.

According to Ms. Lagarde, there are three reasons for the implementation of the digital central bank currency:

  • First, the rapid penetration of electronic means of payment into the lives of citizens and businesses.
  • Secondly, the risks for citizens posed by alternative currencies such as cryptocurrencies, which do not have any kind of central bank guarantee and are not suitable as means of payment because of their volatile value.
  • Thirdly, the dynamic entry of big techs in payments, with Apple, Google and Viber as typical examples, but also the big card schemes. “Already, more than two-thirds of card payments are processed by companies based outside the EU,” the central banker said.

“With digital public money, we can prevent these developments by ensuring that confidence in the monetary system is maintained while promoting innovation,” Lagarde pointed out.

As for the key features of the digital euro, these include confidentiality, which is the top priority according to 43% of respondents to an ECB survey. This, however, does not imply complete anonymity – which is the case for cash – but it will ensure the level of privacy currently afforded to electronic payments.

“I am convinced that joining forces by continuing to work together on the common vision of the digital euro is the best way to manage the transition to the digital age,” Lagarde concluded.

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