Fiat currency remains, but its dominance is diminishing. Across the eurozone, more people are paying with cards, smartphones, and apps, while cash is increasingly sidelined. This shift has prompted the European Central Bank (ECB) to consider how public money can retain its role in an era moving toward cashless living. The solution being developed is the digital euro, a central bank digital currency designed to function like cash, but in an electronic format.

Why a digital euro is necessary

?The main goal of issuing a digital euro is to preserve the benefits of cash in the digital age,? explained ECB Executive Board member Piero Cipollone in July. Between 2019 and 2024, cash usage declined sharply - from 68% to 40% of payment volume, and from 40% to 24% of value. Without a digital alternative, the ECB risks ceding control over everyday payments to private, often non-European platforms, which could threaten monetary sovereignty, market competition, and consumer choice, Cipollone warned.

Unlike commercial digital payments, which often track users, charge fees, and exclude the unbanked, cash is simple, private, and universally accepted. The digital euro aims to replicate these advantages, offering a public, neutral alternative that safeguards consumer privacy, including for offline payments, while reducing dependence on non-European technology providers.

Why the timing matters

The decline of cash leaves a gap quickly filled by non-European payment systems. Without a digital euro, Europe risks further reliance on private foreign platforms, undermining the ECB's influence. Goldman Sachs economist Filippo Taddei noted that, in the absence of a public digital currency, the euro's liquidity and relevance could weaken in a fragmented payments landscape. A digital euro would help establish open payment standards, allow merchants to negotiate fees, foster competition and innovation, and provide a secure offline payment option during crises like natural disasters.

Global context

Several countries are already advancing digital currencies. Russia launched a digital ruble pilot in 2022, aiming for full adoption by 2025 to improve transaction efficiency. China has tested its digital yuan since 2020, now used by over 260 million people. The Bahamas introduced the Sand Dollar in 2020, the first fully operational central bank digital currency. Sweden is experimenting with an e-krona, and the US is exploring a digital dollar with no formal launch date. These examples underscore the global trend toward digital currencies, pushing the ECB to act to maintain the euro's role.

How the digital euro will work

The ECB envisions access through digital wallets provided by banks or government agencies. Payments would be instant, free, and usable both online and offline, as easily as swiping a card - even without internet connectivity. Funds could be loaded from cash or bank accounts, with limits to prevent mass withdrawals. Crucially, the digital euro would protect privacy, with no tracking of purchases or personal data. One digital euro would equal one euro in cash, offering a public, risk-free alternative to commercial digital payments.

Timeline for launch

A digital euro is not imminent. The ECB is in a preparatory phase lasting until October 2025. After this, the Governing Council will decide whether to proceed, following the completion of legislative requirements. Cipollone indicated that all political and legal arrangements should be ready by early 2026. Even if approved, implementation is expected to take two to three years, suggesting a likely launch between 2027 and 2029. Deutsche Bundesbank President Joachim Nagel views 2028 or 2029 as more realistic.

Global implications

There is debate over whether central bank or private digital currencies could challenge the US dollar. The ECB is clear: the digital euro is not intended to compete geopolitically or alter the global financial order. ?It is a retail spending tool,? Cipollone stated. For it to become a true global reserve, significant systemic changes would be needed, including a single market for Eurobonds, integrated capital systems, and a fully empowered ECB acting as a global lender of last resort. Currently, the euro accounts for 20.06% of global reserves in early 2025, up slightly from 19.6% a year prior, while the dollar dominates with 53%. The dollar remains the backbone of global trade, commodity pricing, and cross-border lending, supported by a secure US Treasury market exceeding trillion (?23.1 trillion).