The European Central Bank (ECB) obtained key support from the European Parliament (EP) on Tuesday for the launch of a digital euro, an electronic payment method intended to make the euro area less dependent on American companies Visa and Mastercard, in a period of transatlantic tensions.
Prepared for six years by the ECB, the digital euro has become a more pressing issue, especially after Donald Trump’s return to the White House, who imposed tariffs on traditional trading partners such as the European Union, raising fears that the US could at some point turn dominance over payment networks like Visa and Mastercard into a weapon, as reported by Reuters, cited by Agerpres.
The approval of the regulation project by the EP's Economic Committee comes after three years of disagreements between the ECB and banks, which are concerned about deposit withdrawals and revenue losses.
What is the digital euro
The digital euro is an electronic version of the euro currency, which could be used just like cash for payments in stores, online, and between individuals, without additional costs for users.
Specifically, the digital euro will allow all residents in the eurozone to make online and direct payments.
"The introduction of the digital euro will reduce excessive dependence on providers outside Europe, becoming a pan-European payment method and bringing the single currency into the digital age, giving citizens of the EU the freedom to choose to pay with central bank money in their daily transactions," the regulation project states.
What impact will the digital euro have
The ECB plans to test a 12-month pilot project of the digital euro starting in the second half of next year, before the full launch in 2029.
ECB simulations show that depositors could withdraw up to 699 billion euros from eurozone banks if the limit on digital euro holdings is set at 3,000 euros per person. This amounts to 8.2% of all retail sight deposits, although the impact will be greater for small creditors and retail banks.
The introduction of the digital euro could cost European banks between four and six billion euros over a four-year period, said Piero Cipollone, a member of the ECB's Executive Board.
The new digital currency being developed by the ECB is estimated to cost around 1.3 billion euros to set up. Then, operational costs are expected to be 300 million euros, he added, without specifying if this figure refers to an annual sum.
Banks will be able to cover these costs from the fees they receive from merchants for services provided in the digital euro segment. Banks will provide users with the necessary smartphone app to pay with digital euros.
However, banks should not deduct from merchants' fees the costs they normally bear for remunerating private payment networks, as the ECB will not charge them for its network service.
Instead, merchants will save money, as there will be a cap on the fees charged for digital euro payments, and the cap will be lower than the one currently charged by international firms like Visa and Mastercard.
What's next
Currently, the ECB is working on selecting interested creditors to participate in the digital euro pilot phase ahead of the official launch in 2029.