The European Central Bank (ECB) wants to introduce a central bank digital currency (CBDC) for the eurozone. This digital euro is meant to function as an alternative to physical cash, private digital payment systems (such as Apple Pay, Visa, and PayPal), and Cryptocurrencies (like Bitcoin) (European Central Bank, 2023). As more and more payments go digital, consumers’ dependence on (mainly American) commercial parties grows. The European Central Bank has outlined key objectives for the digital euro, such as preserving monetary sovereignty, ensuring privacy, and improving financial inclusion (Lagarde et al., 2022).
Unlike decentralized cryptocurrencies such as Bitcoin, the digital euro would be a centralized digital currency, directly issued and regulated by the European Central Bank. According to the European Central Bank (2023), the digital euro would function alongside physical cash and commercial bank accounts, allowing users to store and make payments directly from a digital wallet. In your banking app, you will see two types of euros. In addition to existing current, savings, and investment accounts, the banking app will then feature a current account (without interest) with digital euros, guaranteed by the European Central Bank Lagarde et al., 2022).
Critics have expressed their concerns about introducing the digital euro. According to Passacantando (2021), the digital euro poses several challenges and opportunities, particularly in balancing privacy with regulatory oversight and maintaining financial stability while innovating in the payments landscape. The introduction of the digital euro also raises questions about the ECB’s legal powers in regulating and issuing digital currencies across the eurozone (Grünewald et al., 2021).
Another consequence of the digital euro, could be the disintermediation of traditional banks. The digital euro can eliminate the necessity of intermediaries between the producer (the central bank) and the consumer (the public). Those individuals and businesses would now be able to interact directly with the European Central Bank without needing to rely on commercial banks for certain financial services. The digital euro would give the public direct access to central bank money in digital form, reducing reliance on commercial banks for holding funds (“The Digital Euro And Its Impact On Banking”, 2022). Commercial banks and payment service providers act as intermediaries for most digital transactions (e.g, credit card payments, and wire transfers). The digital euro would allow users to make payments directly using central bank-issued digital currency, bypassing the need for private payment operators in some cases (Maragopoulos, 2024).
If individuals and businesses start using the digital euro to store funds directly with the ECB, it could lead to the disintermediation of traditional bank deposits. This may reduce banks’ role as the primary holders of deposits, which could affect their profitability and ability to lend money (Maragopoulos, 2024).
Still, in my opinion, the digital euro won’t lead to total disintermediation because banks will still play a crucial role in areas such as lending, financial advising, and investment services. Additionally, the ECB may introduce limits to prevent excessive outflows from commercial banks, preserving their role in the financial system.
European Central Bank. (2023). The Digitale euro. https://www.ecb.europa.eu/euro/digital_euro/html/index.nl.html
Grünewald, S., Zellweger-Gutknecht, C., & Geva, B. (2021). Digital euro and ECB powers. Common Market Law Review, 58(4).
Lagarde, C., & Panetta, F. (2022). Key objectives of the digital euro. The ECB blog, 13.
Maragopoulos, N. (2024) Exploring the Impact of the Digital Euro on Euro Area Banks. Oxford Business Law. https://blogs.law.ox.ac.uk/oblb/blog-post/2024/03/exploring-impact-digital-euro-euro-area-banks
Passacantando, F. (2021). The digital euro: challenges and opportunities. The (Near) Future of Central Bank Digital Currencies. Risks and Opportunities for the Global Economy and Society, 113-130.
The digital euro and its impact on banking. (2022). KPMG. https://kpmg.com/nl/en/home/insights/2022/12/the-digital-euro-and-its-impact-on-banking.html
