The European Parliament Committee has formally approved legislation to introduce the digital euro, a new electronic payment instrument issued by the European Central Bank (ECB).
The digital euro will operate in two modes: online through account systems and offline via direct transfers between local devices without internet connectivity. The offline mode ensures equivalency to physical cash; however, losing the device would result in irrecoverable loss of funds.
The technology is based on privacy-by-design principles and uses cryptographic tools, including zero-knowledge proofs, that enable transaction verification without disclosing users’ personal details. The ECB will not have access to citizens’ personal information.
Distribution of the digital euro will occur through licensed European payment service providers, such as banks, electronic money institutions, postal agencies, and regulated crypto companies. Most businesses will be obliged to accept it, excluding self-employed individuals and small or micro-businesses that do not engage in cashless transactions.
To safeguard commercial banks, the European Commission will set a limit on the amount of digital euro individuals can hold, based on the ECB’s recommendations. Legal entities are restricted from accumulating digital euros on accounts for more than 24 hours. Additionally, the digital euro will not accrue interest, and usage will not incur extra charges.
Basic services, such as account opening and management, balance viewing, and payment instrument provision, will be free of charge. Banks can charge fees solely for additional services, but cannot impose penalties for account inactivity or enforce package deals. Merchant fees and interbank charge limits will be regulated, and offline payments will remain free.
This legislative package also governs physical cash regulations and the integration of non-eurozone countries. Eurozone countries must ensure cash availability, and businesses cannot reject it. Special attention will be given to protecting vulnerable population groups. According to MEP Fernando Navarrete Rojas, the digital euro will complement, but not replace, physical cash.
Non-eurozone EU countries will be permitted to distribute the digital euro. Still, the ECB retains the authority to restrict its access, with national authorities managing the impact of digital currency on their respective national currencies.
The next phase involves formal negotiations on the legislative documents in July, followed by alignment of the future draft with the EU Council. Before the digital euro’s launch, the ECB will finalize the regulatory framework, construct the infrastructure, and conduct pilot testing. A transition period of at least 2 years is anticipated to accommodate market and consumer adaptation.