The European Central Bank has to decide whether to give the green light to the digital euro this year.If approved, what would it mean for the single currency? And what would change for consumers?
The digital euro has taken a further step towards becoming a reality as the European Commission published its proposal last week.
Cashless payments are increasing worldwide and the trend is expected to continue in Europe, rising from 286.5 billion transactions in 2022 to 466.8 billion in 2026. According to the European Commission, 55% of European citizens prefer this type of payment.
But while a digital euro opens the door to a new economic chapter, it does not come without controversy. Banks, politicians and individuals have all raised concerns, one of the main ones being people's privacy.
The European Central Bank is due to decide in the coming months whether to go ahead with the digital euro. Amid this climate of expectation and apprehension, we spoke to Maria Demertzis, a senior economist at the Brussels-based think tank Bruegel, to answer some of the questions citizens are asking.
What will be the difference between the euro we use today and the digital one? Will it replace cash? Will I have to pay to use it? Will my privacy be at risk? And when will it be available?
Watch the video above.
FAQs
A digital euro would be stored in an electronic wallet set up with your bank or with a public intermediary. This would allow you to make all your usual electronic payments – in your local store, online, to a friend – with your phone or card, online and offline.
Is digital euro safe? ›
A digital euro would be central bank money. This means that it would be backed by a central bank and designed to meet the needs of the people using it. As such it would be risk-free. Moreover, it would respect privacy and data protection.
What is the digital euro for financial inclusion? ›
Possibility to pay digitally even if you do not have a bank account: the digital euro would foster digital and financial inclusion, thereby contributing to cutting the digital divide by allowing individuals without bank accounts to make or receive digital payments, and to access basic functionalities free of charge.
Will the US adopt a digital currency? ›
Policymakers are “nowhere near” taking action on adopting the technology and the government would most likely take a backseat to the banking industry in the creation of a digital currency.
What are the disadvantages of the digital euro? ›
Cons:
- Many European cultures remain cash centric.
- The ECB may be overstressing rapid testing of the digital euro because of the pace of cryptocurrency and pressure to compete with it.
- Financial organisations have no real experience with digital currencies, necessitating the setup of new systems.
Availability: Both online and offline solutions envisaged. Limits: Between €3,000 and €4,000 digital euros per capita. Limits apply to individuals, who may have only one account.
Will CBDC replace cash? ›
2. Will a U.S. CBDC replace cash or paper currency? The Federal Reserve is committed to ensuring the continued safety and availability of cash and is considering a CBDC as a means to expand safe payment options, not to reduce or replace them.
What is the difference between the euro and the digital euro? ›
A digital euro would be a new electronic form of euro cash with legal tender status for payments, like physical banknotes. For consumers already using mobile wallet apps to make digital payments, a digital euro would offer another payment option using digital currency issued by the central bank.
What are the risks of digital currency? ›
Cryptocurrency Risks
- Cryptocurrency payments do not come with legal protections. Credit cards and debit cards have legal protections if something goes wrong. ...
- Cryptocurrency payments typically are not reversible. ...
- Some information about your transactions will likely be public.
A digital euro would offer the highest possible level of privacy. [2] The Eurosystem would not have access to digital euro users' personal information. Consumers would gain more control over their personal data. Third, the digital euro would facilitate the development of pan-European payment systems.
The digital euro is an electronic form of public money – the coins and notes in our wallets. We refer to it as central bank digital currency, or CBDC.
What are the digital euro companies? ›
These appointments followed the ECB's selection of a different five companies (from 54 applications) to prototype digital euro user interfaces in September 2022: CaixaBank, which concentrated on peer-to-peer online payments; Worldline, which focused on peer-to-peer offline payments; the EPI (European Payments ...
Is the USA going cashless? ›
The US is moving toward cashless payments, with a substantial increase in the use of mobile wallet apps and contactless cards. A report from the Federal Reserve Bank of San Francisco found that payments made using cash accounted for just 18% of all US payments in 2022.
Are banks going cashless? ›
Demand for cash has dropped by more than 50 percent over the past decade as a growing number of people rely on debit cards or a mobile phone application, Swish, which enables real-time payments between individuals. More than half of all bank branches no longer handle cash.
Is the U.S. dollar going digital? ›
It's worth noting that the central bank has yet to commit to creating a CBDC in the first place, so the final form of a digital dollar system remains an open issue. Presently the Fed is studying how a digital dollar could help expand consumer access to the financial system and support faster and cheaper payments.
How does the new digital currency work? ›
Cryptocurrency is digital money that doesn't require a bank or financial institution to verify transactions and can be used for purchases or as an investment. Transactions are then verified and recorded on a blockchain, an unchangeable ledger that tracks and records assets and trades.
How does digital currency work for dummies? ›
Crypto works by using a distributed ledger system known as the blockchain. The blockchain is a digital ledger that records all transactions on the network. Each transaction is verified by a computer network and added to the blockchain.
How do you pay with digital currency? ›
Checkout: When making a purchase on the merchant's website, select Bitcoin (or another cryptocurrency such as Ethereum) as your payment option during the checkout process. Generate payment address: The merchant will provide you with a unique Bitcoin wallet address or a QR code.
