European Lawmakers Propose Digital Euro—A Central Bank Digital Currency

A digital euro—a central bank digital currency (CBDC)—may be in the works if a proposal by members of the European Central Bank and the European Commission goes forward.

Easy Transactions While Protecting Privacy

Proponents of the digital euro pointed to a decline in the use of physical cash in an increasingly digitalized world and the need for the euro to keep up with digital advancements.

The proposal said the CBDC would operate alongside cash, with both parties "fully committed to making sure that cash remains fully accepted" in the euro area.

The digital euro would be free of transaction costs and users would be able to pay online and offline, with the use of a digital wallet.

An important caveat in the groups' plans is offering a "higher degree of data privacy than any other digital payment methods" through the offline wallet function. That could be an important issue for critics of CBDCs who have argued that privacy would be lost with a centralized government currency. European lawmakers have joined their U.S. counterparts in bringing more regulation to the cryptocurrency sector, with the EU passing the Markets in Crypto Assets (MiCA) bill in April.

What Does This Mean For Users and Businesses?

A digital euro would have wide-ranging implications for the digital payments sector, with the European Commission noting that "two-thirds of Europe's digital retail payments are processed by a handful of global companies."

Digital payments are often subject to transaction fees that are steep for small businesses and might be passed on to the consumer. The European Commission itself estimates that digital payments for small operators could vary between 1.5% and 5% per transaction, with sometimes an additional expense in the range of five to 15 euros per transaction.

A digital euro without transaction costs could help ease that burden on users. However, other payment providers such as Apple (AAPL), PayPal (PYPL) or crypto exchanges might face competition due to the reduced cost of payments.

In a November 2022 speech, ECB President Christine Lagarde also supported a digital euro and said that "unbacked variants—such as Bitcoin or Ether—are too volatile to act as a means of payment."