The European Central Bank is preparing to launch a digital version of the euro, while reporting that demand for physical banknotes is still rising.
The institution has faced growing challenges as it has tried to modernise payments without alienating the public or undermining trust in cash.
The ECB, which sets interest rates and manages the euro for the 20 countries that use it, said on August 7 that €30.4 billion in banknotes and coins are now in circulation.
Cash, it said, remained a widely used, trusted and “indispensable” form of public money.
But at the same time, the Frankfurt-based institution has been moving forward with plans for a “digital euro”. This is a form of central bank-issued currency that would be held and used through an app on a phone, without requiring access to internet, just as happens with Apple Pay. It would mean no network or data was needed to access it but a battery was – and without a bank handling and accessing your money, just as already occurs with cash withdrawals.
The message was reinforced by ECB executive board member Piero Cipollone in a August 4 publication, where he warned that cash’s legal status should not be taken for granted.
The ECB is supporting legislation that would make physical euros universally accepted across the eurozone.
Similar concerns were raised at a public event held in Brussels on June 26 by the National Bank of Belgium, which is responsible for implementing ECB policy inside Belgium and supervising domestic financial institutions.
“This is not about pushing cash aside,” said Belgian National Bank expert Filip Caron. “The digital euro is a digital form of cash.”
While the ECB sets monetary policy – managing inflation, interest rates, printing more cash and so forth – for the euro area, the National Bank of Belgium (NBB) continued to perform vital functions within the Eurosystem and for Belgium specifically.
The NBB is a member of the Eurosystem, the monetary policy decision-making body for the euro area, which also includes the ECB and other national central banks of eurozone countries.
The push to launch a digital currency has raised questions across the banking sector and beyond, as commercial lenders braced for new infrastructure costs and policymakers attempted to modernise payments without undermining the role of physical money.
The aim, officials said, was to offer a secure and inclusive alternative to foreign-owned digital payments systems.
Caron noted that in 11 of the 19 original eurozone countries, there was no domestic card scheme. “Belgium is an exception,” he said. “But the moment you pay outside the eurozone, your payment is processed by a non-European system.”
The ECB insisted the digital euro would not track users or allow profiling. Unlike commercial services offered by large technology firms, it would be free to use, available offline and controlled by public authorities rather than private corporations.
The project is part of a wider European strategy to boost “monetary sovereignty”, a term also used in recent initiatives such as Wero, a Western European-grown payments platform backed by European banks to reduce reliance on the likes of Mastercard and Visa.
Although the ECB said cash would remain in circulation, the digital euro offers features long favoured by law enforcement agencies, including traceability. That makes it easier to combat tax evasion, money laundering and fraud, areas where cash still played a major role.
When asked whether the move was meant to increase transaction surveillance, Caron said the two systems would function “exactly the same”.
He added that the app-based system would not require an internet connection to complete payments. “App means on a digital device,” he said. “It does not mean you need an internet connection.”
Commercial banks have expressed concern that the digital euro could draw deposits away from the private banking system. To avoid that, the ECB has proposed limits on balances and said it would not pay interest on digital euro holdings.
Other concerns expressed were the costs of this implementation, which commercial banks would likely have to carry in a significant part.
The project is currently in its technical design phase. The first version of the digital euro could be available to consumers by 2026.
