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The European Central Bank’s plan to launch a digital euro by 2029 has run into strong opposition from EU lawmakers and Europe’s banking industry.
Ahead of a key European parliamentary hearing on the project on Wednesday, 14 lenders including Deutsche Bank, BNP Paribas and ING warned that the digital euro could undermine private sector payment systems.
The 14 banks have teamed up to create a private sector rival to US payments companies such as Mastercard, Visa and PayPal. The service, Wero, was launched last year.
“The current design of the retail digital euro largely addresses the same use cases as private solutions, without offering any clear added value for consumers,” the banks said ahead of Wednesday’s hearing.
Fernando Navarrete, a conservative MEP from Spain appointed by the European parliament to assess the digital euro, has also argued for a significantly scaled-down version of the project.
The ECB began evaluating digital central bank money in 2020. Last week, its governing council formally decided to take the necessary steps to be in a position to issue the first digital euros “during 2029”, with a pilot exercise aimed for 2027. The legislation underpinning the project was proposed by the European Commission in 2023.
Current laws only empower the ECB to issue physical cash rather than digital tokens so the project can only move forward if EU governments and the bloc’s parliament give it the green light.
A dramatic decline in the use of cash and the dominance of US payments providers creates the need for the digital euro to protect “our freedom, autonomy and security”, ECB executive board member Piero Cipollone said in September. The share of cash used in stores fell from 72 per cent to 52 per cent in the five years to 2024.
The digital euro has received a boost from the rapid development of US-backed stablecoins, which many in Europe feel could threaten the role of the euro.
The 20 finance ministers of the Eurozone member states last month backed the ECB’s digital euro plans, welcoming “the recent progress achieved in advancing the digital euro project” and urging lawmakers in Brussels to enact the necessary legal changes quickly.
Navarrete argued in a report published last week that the digital euro should only be used instead of coins and banknotes for payments without internet or mobile connection but crucially not as a digital means of real-time payments for other transactions, including online, as envisioned by the ECB.
In his report, Navarrete warns that online payment functionalities could create “a parallel payments ecosystem hindering private solutions from reaching pan-European scale”.
The online version of the digital euro should only be launched if European private sector rivals to US payment providers failed, he argued.
Navarrete told the Financial Times that the private sector was “closer than ever before” to creating a competitive payments system, adding that “a responsible policymaker approach should be to set the framework to maximise the odds for this to happen” while at the same time “being ready for a fallback option”.
It is unclear if Navarrete’s views are shared by the majority of the parliament, with social democrats, liberals and greens all supporting the digital euro, as well as members of his own conservative group.
His assessment was welcomed on Tuesday by the German Banking Industry Committee, the country’s top banking lobby group, which called current plans “too complex” and “too expensive”, warning that it offered “little tangible benefit for consumers”.
In a study commissioned by European banks, PwC estimated that the launch of the digital euro could cost the financial sector up to €30bn. The ECB has rebuffed this estimate, putting the costs at just under €6bn.
“25 years after the euro’s launch, there is still no pan-European, competitive payments solution,” said one senior central bank official, adding that even the successful creation of a domestic private sector rival to Visa and Mastercard would not be a permanent fix to the challenges as its ownership could change.
“Visa Europe used to be European but was eventually sold,” the central banker said.