Legal hot takes the ECB's Digital Euro

The Digital Euro project is the European Central Bank’s (ECB) response to the changing landscape of consumer payments, driven by the rise of cryptocurrency, payment fintechs and electronic transactions. A Digital Euro would be a new form of digital money, issued and supervised by the ECB as a central bank digital currency (CBDC). A CBDC is an innovative type of central bank money1 which can be accessed and used electronically by anyone. More than 100 central banks have expressed an interest in exploring CBDC-related projects as they seek to (i) compete with private digital payment providers, and (ii) preserve the security and stability of their currencies. The ECB is among the frontrunners in this global trend.


The ECB envisages the Digital Euro as a complement to traditional fiat money, rather than a replacement. It would be available through digital means, such as a mobile app, being based on Distributed Ledger Technology (DLT)2. However, unlike some forms of cryptocurrency, the Digital Euro would not be ‘programmable money’. It would not have any built-in conditions or limitations on its use. To advance the development and implementation of this project, the European Commission presented on 28 June 2023 the Digital Euro package. This legislative package3 notably includes a Regulation establishing the legal framework for the Digital Euro, to be adopted jointly by the EU Parliament and EU Council following the European ordinary legislative procedure (OLP). The proposed regulation is “enabling” in nature. It does not constitute an obligation for the ECB. The ECB has in fact the exclusive right to decide on the issuance of the Digital Euro, and is expected to make such decision after the adoption of the Regulation. In October 2023, the ECB will have to decide whether to start the implementation phase of the Digital Euro project, which will entail the development and testing of the relevant technical solutions and business arrangements for the future issuance and use of the Digital Euro.

The proposal signals the growing momentum and importance of the Digital Euro project. The proposal also raises some regulatory challenges and questions. The introduction of a Digital Euro could have significant implications for the monetary and financial system of the EU.

Legal status and design of the Digital Euro

The Commission’s proposal provides that the Digital Euro will have the same legal tender status as conventional euro banknotes and coins. This means that it must be accepted at face value throughout the Eurozone. Member States will determine the sanctions for non-compliance with this requirement. The ECB will have sole authority to issue the Digital Euro. It will decide at which times and in what amounts, and may delegate this function to the national central banks that are part of the Eurosystem. Depending on which institution is issuing the Digital Euro, the European Central Bank or the national central banks will face direct liability vis-à-vis the Digital Euro users. The Commission’s proposal expressly opts for an intermediated model, in which the CBDC can be accessed only through a financial intermediary. In particular, commercial banks and other licensed payment service providers will offer accounts or digital wallets enabling the holding of and transactions in the Digital Euro by users. As a consequence, no account or other contractual relationship would be established between the Digital Euro user and the European Central Bank or the national central banks. This does not impact the direct liability of the ECB and the national central banks towards their Digital Euro users. This means that the possible insolvency of payment service providers and commercial banks would not affect Digital Euro users.

The Payment Services Directive will regulate the payment services related to the Digital Euro. Licensed payment service providers will not need additional authorisation to offer such services. The Digital Euro will be available to all natural and legal persons residing or established in the Eurozone as well as visitors. For Member States outside the Eurozone and for non-EU countries, the ECB and the relevant national central bank will need to agree ad hoc arrangements for the issuance of the Digital Euro.

Risks and opportunities for the private sector

A CBDC could pose a challenge for private sector entities that provide digital means of payment. They would have to compete with a new product that has the trust and credibility of a central bank. Although access to the Digital Euro needs to be enabled through opening a Digital Euro account at a commercial bank or other payment service provider, the proposed Regulation envisages the possibility for natural persons who do not wish to open a Digital Euro account to use a public entity designated by the relevant Member States, such as a post office. The ECB’s strong influence could also constrain the decision-making of private actors that issue stablecoins and other digital means of payment. Moreover, the introduction of the Digital Euro would require private actors to adapt their policies and infrastructure to enable this new payment option. In a wider context, the Digital Euro could increase the risk of economic instability in times of crisis. For instance, in the event of a large-scale deposit reduction in favour of the Digital Euro, banks might face liquidity stress and increased funding costs that might translate to lower credit provision to the economy.

However, the Digital Euro could also create new opportunities for innovation and collaboration between the ECB and private sector entities that facilitate payment services. This could open the door for joint ventures that offer new services and products which combine the strengths of both sectors.

Regulatory and compliance issues

The Digital Euro would entail significant regulatory and compliance implications for the Eurozone. As a novel form of money, its introduction would require robust anti-money-laundering and counter-terrorism financing rules in line with the existing framework (as set out in Directive 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing) and also require enhanced transaction monitoring, since digital transactions pose higher risks than fiat money payments due to their unlimited portability. Data protection and privacy issues would also be crucial, as the legislative proposal stipulates that the ECB and the national central banks must implement appropriate measures to safeguard users’ data, all while protecting against the aforementioned risks which requires a certain degree of transparency, therefore necessitating a delicate balance. Furthermore, the regulatory framework would need to be adapted to ensure effective oversight of the Digital Euro and its stakeholders, as well as its interoperability with existing payment systems.

Potential legal implications

Some key concerns remain unaddressed and warrant further examination by the EU legislative bodies in order to promote a more comprehensive approach to the Digital Euro’s legal implications.

  • The practical manner in which the Digital Euro would interact with other forms of digital money, such as cryptocurrencies, stablecoins and e-money. This raises concerns regarding fair competition, consumer protection and financial stability within the EU. Additionally, the implications of the Digital Euro’s interactions with CBDC initiatives of other jurisdictions (e.g. the digital yuan or the digital dollar) also need to be assessed regarding their impact on the global financial system and the international role of the euro
  • The Digital Euro project must address potential risks and trade-offs associated with the introduction of a CBDC, including cyberattacks, privacy concerns, financial inclusion, monetary sovereignty and cross-border spillovers.
  • Another issue to be assessed is the Digital Euro’s potential impacts on the monetary policy and financial stability of the Eurozone. How will the ECB ensure that the Digital Euro does not crowd out bank deposits?
  • Another key issue is the ECB’s strategy to mitigate the potential negative effects of the Digital Euro on the private sector. It is crucial to identify and implement appropriate measures or safeguards to prevent or limit the risk of bank runs or disintermediation of private payment intermediaries.

The Digital Euro’s introduction could have significant implications for wholesale banks. One key aspect to consider is the possibility of integrating the Digital Euro into payment systems for riskless settlement and how banks’ operational processes and technological infrastructure would require adaptation to accommodate the new currency. Additionally, it remains to be seen how the Digital Euro will affect banks’ interest rate policies. Even though the ramifications of the ECB’s CBDC project remain largely uncertain, the banking industry seems to have doubts. For instance, the Luxembourg Banker’s Association has expressed worries regarding the infrastructure costs attached to a potential deployment of the Digital Euro. It has also adopted a critical stance with regard to the risk that the Digital Euro would lead to a transfer of individual consumers’ money from the balance sheets of commercial banks to those of the central banks.


The Digital Euro project is advancing, with the initial legislative proposal emerging and the ECB is expected to decide after October 2023 whether to launch the Digital Euro. This ambitious initiative offers both opportunities and challenges for the financial and regulatory landscape of the Eurozone, requiring private sector participants to make adjustments and concessions. Nevertheless, the exact scope of the regulatory impacts and the consequences of the Digital Euro’s entry into the current payment ecosystem remain to be seen as the Digital Euro project progresses.


1 Central bank money is the currency and reserves that are the ultimate means of payment and settlement in an economy, and that are created and controlled by a central bank. Central bank money is seen as being free from credit risk and liquidity risk. Commercial bank money is the claims and obligations that arise from the intermediation and credit activities of commercial banks, and that circulate as a medium of exchange among the public.

2 The use of DLT (depending on its operational and technical features) may eliminate the need for a central intermediary validating payment transactions. The current legislative proposal remain technology neutral, which entails that the Digital Euro may also be functioning under the T2 or TIPS framework.

3 The legislative package entails two other proposals: a Regulation on the legal tender of euro cash, to safeguard the role of cash and a Regulation on the provision of digital euro services by payment services providers incorporated in Member States whose currency is not the euro.

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