Global Market: EU opens talks on digital euro rules, eyes 2029 launch

The European Union began negotiations on legislation that would establish the legal framework for a digital euro, marking a major step toward introducing a central bank digital currency across the euro zone, according to Reuters.

The discussions involve the European Parliament, European governments and the European Commission and come three years after the legislation was first proposed. The aim is to finalize the rules by the end of 2026, enabling the European Central Bank (ECB) to formally approve the digital euro on January 1, 2027, exactly 25 years after euro banknotes and coins entered circulation, Reuters reported.

Following approval, the ECB is expected to launch a pilot program next year involving around 40 banks and payment companies. A full public rollout is likely in 2029 after the testing phase is completed.


What is the digital euro?
The digital euro would be an electronic form of cash issued directly by the ECB, making it the only digital central bank money available to the general public. Unlike the digital balances people currently hold in commercial bank accounts, the digital euro would represent a direct claim on the ECB.

According to Reuters, the ECB has stressed that physical cash will remain in circulation indefinitely, even as cash usage continues to decline and digital payment methods gain popularity.

The central bank believes the digital euro would strengthen confidence in the financial system by providing a secure public payment option. It also sees the project as a way to reduce the euro zone's reliance on foreign payment providers such as Visa, Mastercard and PayPal, while reinforcing the bloc's monetary sovereignty in an increasingly digital economy.

The ECB has also expressed concerns that stablecoins, many of which are linked to the U.S. dollar, could pose risks to financial stability and monetary policy if they attract deposits away from banks, Reuters said.

Costs and payment infrastructure
Consumers would be able to use the digital euro free of charge through either a dedicated application or existing mobile banking apps. People without smartphones would have access through a payment card.

Under the proposed legislation, retailers would generally be required to accept digital euro payments because of their legal tender status. Fees that banks and payment providers charge merchants would be capped.

Banks have argued they should receive compensation for the investment required to upgrade payment systems. Reuters reported that the ECB is developing the payment infrastructure and standards for the digital euro and intends to provide them to banks without charge.

Limits on holdings
To reduce the risk of large-scale withdrawals from commercial banks, the legislation will cap the amount of digital euros individuals can hold.

A limit of around €3,000 per person has been widely discussed. Users would be able to replenish their balances after spending part of their holdings, though banks remain concerned that deposits could gradually shift from traditional accounts. To discourage such movement, digital euro balances will not earn interest, according to Reuters.

Privacy safeguards
Privacy has been a key focus of the project. The ECB has said it will not be able to view users' payment details.

For transactions conducted through banking applications, commercial banks would continue to process payment data much as they do with existing digital payments. Reuters reported that the digital euro will also feature an offline payment option, allowing transactions without an internet connection. In offline mode, payment details would not be recorded, with only the resulting changes in account balances becoming visible.