Urgent push on digital EU currency as Trump acts on digital currency matters
The European Central Bank (ECB) is moving forward with plans for a digital euro, a central bank digital currency (CBDC), after announcing an interim solution for a wholesale CBDC in February 2021. The digital euro legislation, however, is still under preparation and has not yet been finalized.
The ECB has been working diligently on a draft digital euro scheme rulebook to harmonize digital euro payments and ensure an inclusive user experience. This process involves extensive stakeholder engagement and innovation testing with market participants and diverse user groups. The trials have seen the participation of the ECB, the Eurosystem, and 64 institutions, including the Banque de France's wCBDC solution, DL3S, in trials of three wholesale DLT settlement solutions during 2024.
The legislative framework to formally authorize issuance and regulate the digital euro is yet to be enacted. The European Union's MiCA crypto regulations have already restricted the scale of foreign currency stablecoin usage and given authorities intervention powers if monetary sovereignty is threatened.
The ECB's preparations for the digital euro project will continue until the end of October 2025, at which point a decision will be made on whether to launch the digital euro, contingent on the passage of supporting legislation. No specific timeline for the final adoption of the digital euro legislation is given, but it is expected that formal legislation will follow thereafter, likely involving proposals by the European Commission, scrutiny by the European Parliament and the Council, and potentially taking multiple years before final adoption and implementation.
The motivation behind the digital euro initiative is to reduce retail payment dependence on foreign companies such as Visa and Mastercard. The legislative work on the digital euro was temporarily halted by the European elections mid-last year but is now resuming. The aim is to finalize the digital euro legislation this year, as suggested by the mention of the Polish and Danish EU Council presidencies.
Meanwhile, the Banque de France and other Eurosystem central banks are actively working to complete the wholesale CBDC project. Denis Beau, First Deputy Governor of the Banque de France, has indicated that a wholesale CBDC will be launched first, with the goal to move quickly from experimentation to operationalisation. The importance of completing the wholesale CBDC project to maintain monetary and financial sovereignty in the new world has been emphasized.
Denis Beau also mentioned the development of a European unified ledger to modernize securities transactions as a medium-term objective. The complexity and potential societal impact of a retail CBDC are more significant than a wCBDC, making it easier to roll out a wCBDC quicker.
The digital euro is targeted at retail users, while a wholesale CBDC is intended for institutional usage. The Trump administration's desire to expand the global usage of stablecoins has stirred backing for digital euro legislation, with April tariff announcements underlining the risk of dependence on foreign companies for payment systems.
However, good progress has been made, but there are areas that require further work on the digital euro legislation. Stefan Berger, the member of parliament coordinating the legal drafting, stepped aside due to reservations about the digital currency, but the European Council, Commission, and Parliament continue to work on a new draft for the digital euro.
- The European Central Bank (ECB) is preparing a draft digital euro scheme rulebook, engaging with stakeholders and testing innovations, with the aim of ensuring an inclusive user experience for retail payments.
- The European Union's MiCA regulations have already restricted the usage of foreign currency stablecoins and given authorities intervention powers to protect monetary sovereignty.
- The ECB intends to launch the digital euro subject to the passage of supporting legislation, expected to involve proposals by the European Commission, scrutiny by the European Parliament and the Council, and potentially taking multiple years before final adoption and implementation.
- Banque de France, in collaboration with other Eurosystem central banks, is working on completing the wholesale CBDC project, with plans to move quickly from experimentation to operationalisation.
- A retail CBDC is targeted at retail users, while a wholesale CBDC is intended for institutional usage, highlighting the complexity and potential societal impact of a retail CBDC, making it more challenging to roll out compared to a wholesale CBDC.
