Digital euro: the base for stability of money in the digital age?

On 28 June 2023, the European Commission presented the Proposal for a Regulation of the European Parliament and of the Council on the establishment of the digital euro ("Digital Euro Regulation Proposal"), and also the Proposal for a Regulation of the Proposal for a Regulation of the European Parliament and of the Council on the provision of digital euro services by payment services providers incorporated in Member States whose currency is not the euro and amending Regulation (EU) 2021/1230 of the European Parliament and the Council ("Digital Euro Services Regulation Proposal"). These are only draft EU regulations, and at this point we cannot yet determine when the digital euro will be established. The European Central Bank expects it to be no earlier than 2025.

People are increasingly using private digital means of payment and increasing the volume of payments made online, which in the view of the European Commission threatens the desired balance between the money of the European Central Bank ("ECB") and private digital means of payment. What should bring the change is the introduction of the digital euro – retail digital currency technologically adapted to the digital age, which, like traditional cash, would be a legal tender (an official form of money) issued by the ECB to which the general public will have access.

Digital euro

The digital euro is not intended to replace the traditional physical form of money, but it has to be available alongside cash. It is only intended to serve as a complementary and optional payment method, anywhere in the eurozone, at any time and without any additional charges. The ECB will be authorised to issue the digital euro, and eventually the national central banks of the EU Member States whose currency is the euro, if authorised by the ECB.

The fact that the digital euro is not intended to replace traditional cash as we know it is further evidenced by the Proposal for a Regulation of the European Parliament and of the Council on the legal tender of euro banknotes and coins, which is intended to strengthen the status of euro banknotes and coins, countering fears of cash becoming less available or being replaced by the digital euro.

Digital Euro Regulation Proposal

In order to adapt the euro to technological change and to ensure its use as a single currency, this regulation establishes the digital euro and lays down rules concerning in particular its legal tender status, distribution, use and basic technical characteristics. The Digital Euro Regulation Proposal regulates the status of the digital euro as a form of single currency with legal tender status and the method of distribution. Further it also lays down the competences of the competent authorities and the restrictions on its use in order to preserve the stability of the financial markets.

Obligation to accept digital euro payments

Given the legal tender status of the digital euro, the Digital Euro Regulation Proposal provides for the obligation to accept it at its full nominal value. Recipients of payments will not be able to:

• unilaterally exclude the acceptance of the digital euro in their commercial (contractual) terms and conditions, nor
• use commercial practices which exclude or restrict use of the digital euro.

It will only be possible to exclude the acceptance of the digital euro on the basis of an individual agreement between the parties. Acceptance of digital euro payments will not be mandatory in selected cases, as for example:

• if the recipient of payment is a business employing less than ten persons or whose annual turnover or annual balance sheet total does not exceed EUR 2 million, or is a non-profit-making legal entity, unless it accepts comparable digital means of payment;
• if the payment is refused in good faith, on legitimate and temporary grounds in accordance with the principle of proportionality and for reasons beyond the control of the recipient of payment; or
• if the recipient of payment is a natural person acting exclusively in a personal or domestic activity.

Obligation not to charge fees for digital euro payments

The Digital Euro Regulation Proposal prohibits the recipients of payments in the digital euro from adding any charges only because of the reason, that a payment is made in the digital euro.

The Digital Euro Regulation Proposal prohibits the recipients of payments in the digital euro from charging digital euro users any fees for basic digital euro payment services, transaction fees or other hidden charges.

Further information about the digital euro

The ECB recognises that the process of introduction of the digital euro into practice will not be easy. It will be crucial for its acceptance by the public that the use of the digital euro is truly simple, low-cost, fast, secure and that it contributes to enhancing consumer protection. In practical terms, payment with the digital euro would be possible, for example, by card, phone or smart watch. The ECB plans to set up free support and access to digital euro services for anyone who might find it difficult to use the digital euro.

Digital Euro Services Regulation Proposal

The Digital Euro Services Regulation Proposal will be addressed to payment service providers registered in the EU Member States whose currency is not the euro.

The objective of this regulation is to ensure that the provision of digital euro services by payment service providers registered in a Member State in the eurozone whose currency is not the euro ("Providers") is subject to appropriate supervision by the competent authorities of that EU Member State.

The Digital Euro Services Regulation Proposal regulates mainly specific obligations for Providers and also regulates the supervision of their activities and compliance with the obligations set out.

We will continue to monitor the development of the digital euro legislation and will keep you informed of new developments in relation to the digital euro in due course.