Digital Euro: Europe’s Sovereignty Project Has a Demand Problem

The digital euro has taken another step toward political reality. On July 9, the European Parliament voted by 416 to 169, with 22 abstentions, to proceed with negotiations with EU member states. The vote does not authorize the issuance of a digital euro, but it moves the proposed legislation into the next stage of the process. A first negotiating round with the Irish presidency of the Council is expected shortly.

The European Central Bank is preparing for a 12-month pilot beginning in the second half of 2027. If the necessary legislation is adopted during 2026, the Eurosystem aims to be technically ready for a potential first issuance in 2029. Even then, the ECB Governing Council would still need to make a separate decision on whether the digital euro should actually be issued.

As the project advances, however, the case for a retail central bank digital currency deserves more scrutiny, not less.

I am not convinced that Europe needs a retail CBDC, and I would prefer not to see one introduced without much stronger evidence of a clear public benefit. This is not opposition to technology or digital payments. Europe already has an advanced banking sector, widely used card and mobile-payment services, and an increasingly effective instant-transfer infrastructure.

The burden of proof should therefore remain with the ECB: what meaningful problem does the digital euro solve for ordinary citizens that existing systems do not already address?

Europe Already Has Fast Payments

The digital euro is frequently presented as part of the modernization of European payments. But Europe does not lack the ability to transfer money quickly.

Through SEPA instant credit transfers, funds can reach the recipient’s bank account within ten seconds. The ECB’s TARGET Instant Payment Settlement platform, known as TIPS, enables payment providers to settle these transfers around the clock throughout the year.

SEPA and the digital euro are not the same. SEPA moves commercial-bank money between accounts. The digital euro would be a direct liability of the Eurosystem, distributed through banks and payment providers and usable in stores, online and between individuals.

That distinction matters institutionally, but it may mean little to a consumer who can already send money instantly or pay by tapping a card or phone.

The digital euro is therefore not primarily solving a speed problem. Its real purpose is to determine who controls the infrastructure through which euros are used digitally.

Sovereignty Is the Strongest Argument

Europe’s reliance on non-European payment networks is the most credible argument for the project.

Thirteen euro-area countries depend entirely on international card schemes for card transactions, while international schemes accounted for around 61% of euro-area card payments in 2022. The ECB argues that this dependence creates economic-security and monetary-sovereignty risks, particularly as cash use declines and more economic activity moves online.

A digital euro could provide a common European payment rail governed by European institutions and operated through European providers. It could also give domestic banks and payment companies common standards on which to build services across the euro area.

This would not remove Visa or Mastercard from Europe. Both would retain powerful advantages in global acceptance, credit products, rewards, fraud controls, chargebacks and merchant relationships.

What they could lose is their position as infrastructure that is difficult to bypass. Some European payments could move through a public rail without relying on their networks and fee structures.

Yet monetary sovereignty and individual freedom should not be treated as the same thing. Moving control from an American card network to a European public institution may strengthen Europe geopolitically, but it does not automatically give citizens greater control over their money.

A payment system can be European and sovereign while becoming more centralized at the same time.

The Digital Euro Has No Clear Killer Feature for Users

The ECB says the digital euro would provide a universally accepted means of payment across the euro area. Basic services would be free for individuals, and payments could be made online or offline using a phone or smart card. People without conventional bank accounts could potentially access it through public intermediaries or other payment providers.

Offline payments could provide genuine value during connectivity failures, emergencies or disruptions to private payment networks. They could also offer a level of privacy closer to cash, because transaction details would remain between the payer and recipient.

A public digital-payment option could therefore function as an alternative or backup rail.

But there is still no obvious killer feature for most Europeans. Consumers already have contactless cards, mobile wallets and instant bank transfers. The digital euro would not pay interest and would not be designed as a savings product.

For many users, it may simply appear as another payment button inside an application they already use.

The relevant measure of success will not be how many wallets are opened. It will be how often people voluntarily choose the digital euro over payment methods that already work.

Europe may be able to require banks to distribute it and most merchants to accept it. It cannot legislate genuine demand.

Deposits Expose the Project’s Central Contradiction

Bank deposits are not simply balances sitting inside customer accounts. They are a central source of funding for loans to households, businesses and the wider economy.

The ECB depends on a healthy banking system not only for financial stability but also for the transmission of monetary policy. It therefore has little interest in allowing large amounts of money to move from commercial-bank deposits into direct claims on the central bank.

This is why the digital euro is being designed with limits. Users would only be permitted to hold a restricted amount, no interest would be paid, and linked bank accounts could automatically cover payments above the wallet balance. The ECB has examined hypothetical holding limits of up to €3,000 per person, although no final figure has been agreed.

These safeguards are not minor technical choices. They reveal the fundamental contradiction at the heart of the project.

The ECB needs the digital euro to be attractive enough for people to use but not attractive enough for them to store substantial wealth in it. It is pressing the accelerator and the brake at the same time.

Deposits are the blood of banks. The ECB is unlikely to promote a design that materially drains that blood from the banking system it depends on.

What Is in It for Banks?

The business case for banks remains unclear.

The ECB estimates that implementation could require between €4 billion and €5.8 billion in total banking-sector investment over four years. Banks would need to integrate new infrastructure, update applications, support customers and meet operational and compliance requirements.

In return, banks would remain the main interface with customers. They could charge merchants within regulatory limits, receive compensation for distribution costs and offer additional paid services, including conditional payments and loyalty products. The Eurosystem would carry the cost of establishing the central scheme and infrastructure.

Banks could also reduce some of the fees currently paid to international card networks and protect their customer relationships from technology companies and privately issued stablecoins.

But these are possible benefits, not guaranteed revenues.

Banks may lose some card-related income, face substantial technology costs and assume at least some risk of deposit migration. Unless the compensation model provides a credible return, their rational response may be compliance rather than promotion.

A bank can place a digital-euro wallet inside its application because the law requires it to do so while making little effort to persuade customers to use it.

For consumers, the digital euro is being presented as a new choice. For banks, it may begin as a new obligation—and only become an opportunity if the commercial model works.

Privacy Cannot Depend on Today’s Promises

The ECB says offline payments would provide a cash-like level of privacy. For online payments, banks and payment providers would still identify customers for anti-money-laundering compliance, but the Eurosystem says it would not be able to directly connect transactions to specific individuals.

The European Parliament also wants privacy-by-design and privacy-by-default protections, potentially including zero-knowledge-proof technology that can verify transactions without exposing unnecessary personal data.

These protections are meaningful, but they do not make the digital euro equivalent to cash.

Cash provides privacy through its physical nature. Digital-euro privacy would depend on legislation, software architecture, data-separation policies and the conduct of the institutions operating the system.

The ECB also says the digital euro would never be programmable money that restricts where, when or with whom it can be spent. It could support conditional payments chosen by the user, such as releasing payment after a product is delivered, but not centrally imposed spending restrictions.

That distinction is important, but it does not eliminate the longer-term risk of function creep.

A system introduced as a limited retail-payment instrument could gradually become integrated into tax collection, benefit distribution, subsidies, refunds and other government payments. The current proposal does not give authorities automatic access to citizens’ money or authorize them to seize taxes directly from digital-euro wallets. The concern is what future laws and policymakers could attempt to build on top of the infrastructure.

Taxation is already one of the most sensitive points in the relationship between citizens and the state. Greater efficiency in paying or collecting taxes may sound attractive administratively, but it could reduce the practical distance between a person’s money and the public institutions seeking to collect or distribute it.

Future governments could also face pressure to attach conditions, deadlines or eligibility rules to specific public payments. Benefits could be made usable only in designated sectors, subsidies could expire after a fixed period, or certain liabilities could be settled more automatically.

Even when introduced in the name of efficiency, such functions would change the nature of money. It would no longer be only a neutral instrument held and controlled by the citizen; it could also become a direct channel through which public policy is executed.

The question is not only what the ECB promises to do at launch. Payment infrastructure can remain in place for decades while governments, laws and political priorities change.

Safeguards against automatic state access, restricted spending and imposed programmability must therefore be embedded in both legislation and technical architecture. They cannot depend solely on commitments made by the institutions managing the project today.

A Digital Euro Will Not Dethrone the Dollar

The digital euro may support the international role of the euro, particularly if it can eventually connect with payment systems in other countries. The ECB says access outside the euro area could be possible under agreements with foreign jurisdictions and their central banks.