The interview was conducted by Oliver Stock.

Mr Balz, what are the actual advantages of the digital euro? Why is Europe pursuing it? We seem to be getting by without it ...

At the current juncture, Europe is dependent on US payment service providers. In online trade, PayPal accounts for just under 30 % of the market in Germany. Meanwhile, Mastercard, Visa and American Express dominate the credit card market. Even our national payment solution, the girocard, does not work in other euro area countries. It requires the Mastercard and Visa procedures, which are often also included in the bank card. And it goes even further than that: Direct banks frequently issue not only their credit cards but also their debit cards via the Mastercard and Visa schemes. As a result, Mastercard and Visa’s market shares rise at the expense of the German girocard.

So dependence on US firms is growing?

Yes. Out of the 21 euro area countries, only seven have their own national payment system: Germany has the girocard, France has the carte bancaire and the Netherlands has iDeal. Only one in three, in other words. The other euro area countries are fully dependent on international payment service providers, particularly the major US payment providers. We need to be able to pay independently of these providers.

Independently of Trump’s systems, you mean?

US payment systems work in a highly professional manner. When it comes down to it, though, they could be turned off upon instruction. We want to avoid getting caught in such a situation; thus, we need our own European payment system for strategic reasons. 

How far along are we with the digital euro? What is certain and where are there still questions?

We, the Eurosystem central banks, require a legal basis from Brussels for the digital euro. We approve of the stance taken by the Council of the European Union and the European Commission. However, we have also taken note of the European Parliament’s draft report, which differs significantly from our views on how the digital euro project should progress.

An outlier opinion?

More than 1,600 change requests have already been submitted to the responsible rapporteur’s report. This suggests that many MEPs have conflicting views on the digital euro. Negotiations in Parliament, which are likely to be both lively and demanding, are beginning now.

What lies at the heart of the proposed changes?

The proposed changes reflect the different positions of the various political groupings. The rapporteur in the European Parliament is proposing that a European payment system initially be set up by private providers. On the other hand, an encouraging number of MEPs from other groups would prefer to avoid further delays. They are envisaging a combination of a basic public offering – the digital euro – and private providers from the outset. We in the Eurosystem also advocate for this approach, as our experiences over the past 25 years show that private providers have thus far failed to establish a truly European solution.

Is that delaying the implementation of the digital euro at present?

The European Parliament is scheduled to hold a vote on the digital euro in May. The pressure is on. If things go well, an agreement will be passed by end-2026. Our objective as Eurosystem central banks is to launch a pilot operation in mid-2027. As before, we still expect the digital euro to go live in 2029.

Who might participate in this pilot operation?

In March, the Eurosystem will initiate a call for expression of interest, inviting European banks and other payment service providers to participate in the pilot project. 

But everything depends on Parliament ...

It all comes down to the details now. The legislators in Brussels have to set the framework and decide what the digital euro should look like – with regard to the holding limit, for instance. Banks are concerned that too much liquidity will flow out of bank accounts. They are thus calling for a maximum holding limit for the digital euro.

How high will that be?

A figure of €3,000 was being floated at one point. But the limit will be decided by the European Central Bank and the EU Council in tandem once the ECB Governing Council has given the final go-ahead for the digital euro.

I thought the ECB was independent.

Central bank independence is an important issue. However, European legislators must set out the framework for the digital euro as legal tender. Incidentally, the package of regulations, the Single Currency Package, not only contains the legal basis for the digital euro, but will also strengthen the status of cash as legal tender. The digital euro is not intended to replace cash. This is something European legislators are very much bearing in mind. Cash is not going to be abolished. On the contrary: the current regulation texts of the EU Council and the European Parliament rapporteur stipulate that there will be an obligation to accept cash in the retail sector. 

€3,000 is not a large sum. I wouldn’t be able to buy a car with the digital euro, for instance.

People can make limitless payments with the digital euro if they link their wallet – that is to say, their digital wallet on their mobile phone – to a bank account. That’s where the waterfall mechanism comes into play. Payment amounts exceeding the holding limit would be automatically debited from the linked bank account. For us as central banks, then, this holding limit is not a dealbreaker. I could even live with a holding limit of €500, because all that matters is that the customer has sufficient funds in their linked bank account.

Will there be interest on the digital euro?

No interest is charged on the cash in your pocket, nor will it be charged on the digital euro. It is the digital twin of cash. It is not intended to be a form of investment, but rather a means of payment. 

Will it work offline?

Yes, this is an important function of the digital euro. It will be usable even if the internet is not working or the power is out. It will offer cash-like privacy levels for cash payments: transaction data for offline payments in digital euro will only be known to the payer and the recipient of the funds.

Who will actually be paying for the system? It has to be installed and maintained, after all. Will all of us ultimately have to foot the bill?

The infrastructure and operation costs will have to be paid by the Eurosystem central banks. There will be three operating locations in Germany, France and Italy where the digital euro will be created and settled. Three sites are needed for the event that one site goes down. The latest estimate of development costs to be borne by the Eurosystem amounts to €1.3 billion. On top of this, there are operating costs to consider. According to estimates by the European Central Bank and the European Commission, banks’ investment costs over four years are likely to amount to more than €1 billion per year. Banks would have to integrate the digital euro into banking apps, for example. And it would need to be possible to refill your digital wallet at ATMs.

Will this be funded by the Eurosystem? You are the ones creating this money ...

The Eurosystem will bear the costs of infrastructure and make it available to banks and other payment service providers free of charge, like with cash.

Where are you still encountering the greatest resistance?

From parts of the banking industry. 

What’s behind that?

They are worried about parts of their business models and often prefer to stick to tried-and-tested systems. 

Why is that?

Because many things are still unclear. At the end of the day, banks want to make money, which is understandable. There are also concerns that the digital euro could have a disruptive effect on business models. I do not share these concerns, because we in the Eurosystem want to conduct this project in partnership with the banking industry. We cannot do it alone. The banks will create the interface with the customer. As is the case with other means of payment, they will receive retail fees. In addition, they can offer additional services that go beyond the free-of-charge basics, thus tapping into new sources of revenue.

How are you convincing sceptics from the banking industry to get involved?

By talking to them. Not a week goes by without me having personal conversations with people or speaking at conferences.

We are seeing rapid growth in crypto-currencies ...

Crypto-assets, please – these are not currencies.

I see. There are now also stablecoins that are pegged to the dollar, for example. Is the digital euro coming too late?

Stablecoins are currently mainly used for crypto trading. I do not see them being used in competition with the digital euro in European retail payments for the foreseeable future. But just because we can’t imagine something today, that doesn’t it mean it can’t happen in future. That is another reason why we shouldn’t get left behind by developments; we need the digital euro. At the same time, we are developing a European solution for financial market transactions in central bank digital currency, i.e. for transactions between banks, stock exchanges and clearing houses. This solution is already set to be implemented this year.

Won’t the European Parliament object to that?

No – this solution does not require a legal basis, unlike the digital euro, which is intended to become legal tender.

The digital euro project has been ongoing for five years. Isn’t it taking a little too long for your liking?

Large-scale projects at the European level are hardly 100-metre sprints. Rather, they’re all marathon runs.

How many kilometres has the digital euro project already covered?

In my view, we’ve passed the 30-kilometre mark.

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