Only balances of €500 allowed? What the digital euro is intended to deliver – and what not Interview with Focus online

The interview was conducted by Oliver Stock.

Europe is in the preparation phase of a project – the digital euro project – that has the potential to modify our payment system in a way comparable to the changeover from Deutsche Mark to euro. What is happening at the moment?

The euro was introduced in 1999 as a new, single currency. The digital euro will simply represent the creation of an additional payment option that will be usable both online and offline. It will be the first digital European means of payment accepted throughout the Eurosystem. Just like cash, the digital euro will be issued by the Eurosystem central banks and will provide the highest possible level of data protection. At the end of last year, we concluded the investigation phase and entered the preparation phase, which is expected to last until autumn 2025. This preparation phase already involves us experimenting with how the technological basis of the digital euro might look.

What kind of experiments?

Over the next few months, we will focus on finding out which technology is best suited to the digital euro. Will it be blockchain technology that we’re familiar with from Bitcoin? Or would it be better to tokenise the digital euro – in other words, to create a kind of digital token? The Bundesbank is very open to the idea of a token-based solution. However, we will need common rules for the digital euro, too. This must involve all stakeholders: us as the issuer of the digital euro, banks, financial service providers, retailers and consumers. And then we will need to provide the general public with a very good explanation of what the digital euro is and what’s in it for them. This is crucial for the success of the project.

Yes, I agree. But I don’t understand the project. If I use online banking today, or pay with my mobile phone, I am already active in the digital sphere. What does the digital euro have to offer me?

It goes without saying that we have well-functioning payment systems today. However, we do not yet have a digital European means of payment that works across national borders. Take the girocard, this is a purely German system – it only works within our national borders.

But mine also works in Italy ...

... Yes, but only because transactions are settled via the US payment service providers Mastercard or Visa. We are reliant on international card systems. The digital euro would reduce dependence on major payment companies. A digital euro would therefore make a significant contribution to European sovereignty. We would set the rules for the digital euro ourselves and the infrastructure would also be in Europe. The topic of sovereignty has gained considerable importance in the wake of the outbreak of the war in Ukraine.

What is the maximum balance I can hold in digital euro? €3,000 is the amount being bandied about, but it doesn’t sound like that much.

That has not yet been decided. €3,000 is currently the cap that is being discussed internally. The caps under discussion at the moment range from €500 to €3,000.

But that’s not much ...

In this context, you need to know that this €500 to €3,000 would be a holding limit in a banking app or digital euro app, but not necessarily a limit for payments. Anyone who wants to buy a car, high-quality furniture or anything else expensive will be able to do so even with the holding limit. That’s because a “waterfall system” is also currently being developed, which would mean that anyone with an app for the digital euro would be able to link it to their bank account. There would have to be a sufficient balance on that account and then the funds needed for a payment in excess of the holding limit would practically flow from the bank account to the digital euro app. PayPal works in a similar way.

For banks, balances in digital euro are a major issue as they say that the money will not be held with them and they will have less available to lend, for example.

That argument doesn’t hold. First, it is up to banks to offer their customers attractive conditions for bank deposits. Second, the waterfall system would enable bank customers to pay with the digital euro regardless of the balances they hold. Banks and payment service providers can rest assured that we want to work closely with them when it comes to issuing the digital euro

Savings banks and cooperative banks, in particular, are sceptical.

I think that we are on the right path to dispelling the opposition. The legislative proposal on the digital euro is crystal clear, and progress will continue to be made with the project. The infrastructure will be provided by the Eurosystem, i.e. the ECB and the national central banks. And we will also cover the costs for this. We are not seeking to make a profit. Banks will need to adapt their IT, but they will also have income from the digital euro.

But where will the banks’ revenue come from?

These days, there are fee models for every payment transaction that go unseen by customers because the fees are incurred by retailers and paid to banks and third-party providers such as PayPal. Margins for non-European payment service providers, in particular, are in some cases very generous. Rules for margins when paying with the digital euro are currently being drawn up by European legislators.

So this will end up being expensive for the customer?

No, the basic functions of the digital euro should be free of charge for end consumers. Other payment methods also incur fees paid by retailers. Retail customers will not pay for services using the digital euro. We want the digital euro to serve as a European, universal payment solution that works in all payment situations.

Will the digital euro crowd out cash?

Cash remains our core product; the digital euro will complement it. However, the rates of cash use are declining slowly but surely, even in Germany. As Eurosystem central banks, we would therefore like to issue a digital means of payment alongside cash.

Things are also being made difficult, aren’t they. ATMs are disappearing, many retailers prefer card payments ...

Cash supply still works very well. Everyone can withdraw cash at the supermarket checkout as well as at any major petrol station. To me, cash is freedom in action. We are in the process of launching the third, entirely new series of euro banknotes. And we are doing this because we are continuing to go “all in” on cash.

When will the new series come out?

Probably in 2029. All euro banknotes will then be issued, one denomination after the other, featuring new designs and security features. We will be presented with the new designs soon.

There are also some political reservations about the digital euro. What have you been hearing?

The “traffic light” coalition stated in its coalition agreement that it supports the project. A majority within the CDU/CSU are also in favour. The only political force in Germany that rejects the digital euro is the AfD. It alleges that, with this project, we Eurosystem central banks are ringing in the abandonment of cash, which is simply nonsense. What we actually want to do is to give cash additional protection by means of a European draft regulation.

There are similar currency projects happening worldwide, and China – so I hear – is at the forefront.

Around the globe, over 130 currency digitalisation projects are under way. Four currency areas have gone live so far: Jamaica, the Bahamas, the East Caribbean Currency Union and Nigeria. Other than that, many countries are in the advanced stages, and China is one of them. With the digital euro, we in Europe are perhaps in the top quarter.

We are assuming that China also wants to control its people with a government-issued digital currency.

In Europe, we are saying loud and clear that we are not interested in individual transactions in any way. Eurosystem central banks will not be able to trace users’ identities. A high level of privacy would be one of the core characteristics of the digital euro. It is only the rules to prevent money laundering and terrorist financing that need to be considered.

So what happens next?

In the best-case scenario, the legal basis for the digital euro will be adopted by the European Parliament and the Council of the European Union in the second half of 2025. Only then can the ECB make a final decision on the introduction of the digital euro. The digital euro could then arrive at the end of this decade.

So we can sit back and relax now, right.

No, because now we are deciding what the project will look like. Internally, we expect that, following the Governing Council’s decision, we will still need around three years of testing to ensure the security of the system.

The article “Only balances of €500 allowed? What the digital euro is intended to deliver – and what not” appeared in Business Punk.