The digital euro moves forward

The European Central Bank (ECB) recently published a quarterly update of the two-year retail digital euro development initiative that kicked off in November 2023. It did not contain any material announcements; rather, it stressed how careful the institution was being in listening to stakeholders and in taking on board their comments. The overall tone was “we’re going to go ahead with launch, but we’ll do so with the broadest compromise possible”.

Some takeaways:

• In September, a user research program was launched to gauge user preferences and “enhance the digital euro’s value proposition”.
• Merchant and consumer groups are correctly raising questions about why users would want to use the digital euro when digital payment platforms exist and many prefer using cash anyway.
• We should get a revised version of the Rulebook within the next few months. This document will dictate how the digital euro will be implemented and used. The final draft should be ready by the end of Q3 2025.
• There is still no decision on the holding limits for users; rather, the focus is now on devising a methodology to decide on the limits. An updated proposal on the methodology (not the limits themselves) is expected before the end of the year.
• Work is progressing on the technical aspects of the offline version, with the ECB looping in mobile device providers.

For those who hopefully insist that, as the document itself says, no final decision has been taken and these are exploratory moves to gauge the feasibility and product/market fit, consider the following quote tucked away towards the end:

“Public communication efforts have continued to focus on raising awareness about the necessity of a digital euro and explaining its potential benefits for users through various channels.” (my emphasis)

Officials are starting an early campaign to convince EU residents to use the CBDC when it eventually launches.

As I’ve written about before, they are employing the standard marketing technique of convincing users there are pain points that only this particular technology can address. Yes, it continues to feel like a solution in search of a problem, and it could end up being yet another colossal waste of public funds and time that could be better spent coordinating support for unified capital markets, for instance.

Another concern I have is that the CBDC will see very low use, as has been the case in all other jurisdictions that have launched a retail version (such as Nigeria, India, China, Bahamas). That would present a strong incentive for the ECB to break its promise of optionality, and mandate the CBDC’s use in certain situations.

Then again, it might be entertaining to see President Trump’s reaction when he realizes that one of the touted advantages of the digital euro is reducing the bloc’s dependence on US-based payment platforms. Put differently, the EU hopes that the retail CBDC will lead to lower dollar use on the continent.

The drama of tariff threats aside, the digital euro looks like a done deal, and it’s up to the ECB, commercial banks, and merchant/consumer groups to tussle over features and operational rules. It’s not imminent – an official decision will apparently be taken next October. The report doesn’t specify a timeline for implementation, but it’s likely it would be gradual, spread out over a few years.

I like my silver linings, and maybe when we all have to have digital wallets, we’ll see support for independent services that can interact with the government technology, potentially adding innovation at scale.

Still, for now this feels like a move towards greater financial centralization, from an institution desperate to remain relevant in an increasingly digital world.

(This is an excerpt from my Crypto is Macro Now newsletter, a ~daily publication where I look at the impact of crypto on the macro landscape. If you’re not a subscriber and you’re interested in seeing beyond the crypto impact noise, I hope you’ll consider becoming one!)