Tests of the digital euro will begin in 2027 and the first issue will arrive in 2029. A public currency that promises more security and sovereignty, but which risks creating liquidity leaks, new costs and fears for the European banking system.
This time we are there. After a long debate and two years of work, the countdown has begun. THE’digital euro will be tested as early as 2027, as announced by the president of the ECB, Christine Lagardeand will see the first issue in 2029. But in this period of time the operating mechanisms of which little is known will have to be defined. The regulation will be adopted in 2026, valid in the 27 Member States, and a pilot phase will start the following year.
WHAT CHANGES FOR EUROPEAN CITIZENS
For EU citizens, however, this project remains a mystery. First of all, the digital euro it should not be confused with cryptocurrencies or with stablecoins, which are instead linked to the dollar – in the future to other currencies – and are generated by private individuals. The new currency will be issued by the ECB and will complement, but not replace, the banknotes and coins we have in our wallet. Was this operation really necessary? The digitalisation of payments is now a reality, cash is in decline, but Europe has not yet given an answer to this phenomenon.
THE DOMINATION OF FOREIGN CIRCUITS
According to the latest findings, cash represents approximately 24 percent of daily transactions. Everything else happens via digital channels dominated by non-EU circuits such as Visa And MasterCardwhich currently handle almost two-thirds of card transactions carried out in the Old Continent. There are also European platforms, such as the Italian one ATMbut almost all of them only work at the national level. It was therefore necessary to fill this gap.
HOW IT WILL BE STRUCTURED: THE LIMIT OF 3,000 EUROS
As mentioned, the digital euro is still a work in progress. The hypothesis under study is however to establish a individual limitwhich in the simulations carried out so far could be equal to or less than 3 thousand euros, as the maximum limit that can be held by each citizen in a virtual wallet (a digital wallet managed not by the ECB directly, but by supervised intermediaries) to be used via card or mobile phone application. Naturally the conversion will be on par with the physical euro (1 digital euro = 1 physical euro) and the aim is for it to be primarily a means of payment and not a form of investment or savings. The ECB intends to make it a free public good for basic services, usable throughout the Eurozone both for purchases in physical stores (online and offline) and for person-to-person transfers. You can make payments even without an Internet connection, using technologies such as Near field communicationthat is, short-range communication that allows the exchange of data between two proximity devices.
THE ROLE OF BANKS
The role of the banks is fundamental, which will be to manage relationships with the end customer (opening of the wallet and services). “Thanks to a connection with accounts at credit institutions, citizens will be able to make and receive payments in digital euros without problems, even for large amounts,” he explained Piero Cipollonemember of the Executive Committee of the ECB, in a speech before the Committee on Economic and Monetary Affairs of the European Parliament in which he outlined the advantages of the new mechanism. Cipollone also highlighted a geopolitical aspect. «Since the euro remains the only unit of account, our monetary sovereignty is also protected with the spread of stablecoins, currently mostly denominated in foreign currencies, and unsecured crypto-assets».
THE REAL COSTS OF THE DIGITAL REVOLUTION
All this, of course, comes at a cost. The European Central Bank estimates that credit institutions will have to take into account between 4 and 5.8 billion euros. This is significantly lower than previous industry estimates because it reflects the potential for banks to share infrastructure and exploit synergies. “I hope that these are the only costs”, commented the president of the ABI, Antonio Patuelli. It is clear that it will be necessary to intervene not only on the IT infrastructure, but also on the systems anti-money laundering And anti-terrorismon the interoperability of domestic circuits, POS and ATMs.
INSTITUTIONS’ FEARS: A THREAT TO LIQUIDITY
One of the concerns, in fact, is that the digital euro could threaten the balance of the banking system, calling into question the business model with the risk of deposit outflows and therefore liquidity problems. The question posed by the ECB is how much money this payment instrument would take away from bank deposits, having the attraction of being a digital but cash currency. From a simulation it emerged that, in a normal situation, the outflow of liquidity from banks to wallets would be “contained” and would stop at around one hundred billion euros, with the aggregate bank liquidity coefficient Lcr falling from 166 to 163 percent.
THE PANIC SCENARIO: UP TO 700 BILLION IN THE FLIGHT
However, history is not free from dramatic situations, as the failures of Lehman Brothers and of SVBSilicon Valley Bank. The ECB has assessed that in a moment of financial panic, with a flight from bank deposits, they could be moved in a few hours from traditional accounts to digital wallets – perceived safer because they are guaranteed by the Central Bank – well 700 billion euros. Frankfurt underlines that only 13 European institutions out of 2,025 would drop to an Lcr liquidity safety threshold of 100 percent and of these only nine would go below, however remaining within regulatory standards. The smaller, less capitalized banks would be the first to suffer, but the ECB still considers this scenario “highly unlikely”.
THE RESISTANCE OF EUROPEAN BANKS
However, the institutions of the Old Continent have expressed strong concerns about the possible drain on liquidity and the consequent reduction in the ability to provide credit to the real economy. A group led by Deutsche Bank, BNP Paribas And Eng he even proposed that the digital euro, like cash, cannot be used in online payments. Mediobanca, for example, believes that until 20 percent of bank profits could be called into question by the project.
PROS AND CONS OF A PUBLIC DIGITAL MONEY
The other side of the coin, however, are the benefits such as greater autonomy and sovereignty of European payment circuits, with consequent reduction of dependence on the various Visa, Mastercard, PayPal, Apple Pay; higher safety standards and stability, since the digital euro would be issued directly by the ECB and therefore without insolvency risk; a greater efficiency and lower payment costs, thanks to the absence of intermediaries; more financial inclusionallowing use even by those who do not have a bank account, via a public application or prepaid cards.
THE STRUCTURAL LIMITS OF THE PROJECT
But there are also limits. The European digital currency would remain just a currency domestic difficult to use in international trade with the rest of the world. In short, a necessary project, but with many facets still to be defined. And the question always present in the changes: will there also be greater costs for the saver?
