What is the digital euro and how will it affect Europe’s economy?

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The concept of the digital euro is gaining attention as a potential game-changer for payments across the eurozone. Unlike decentralized cryptocurrencies, the digital euro will be issued and regulated by the European Central Bank (ECB), offering a stable and secure digital alternative to cash. 

For businesses and consumers alike, the digital euro could revolutionize the way payments are made — faster, more secure, and more accessible than ever. 

But what is the digital euro and how will it affect the European economy? 

In this article, you’ll learn what the digital euro is, how it works, what it could mean for the future of payments in Europe, and how MONEI is getting involved.

Table of contents

• What is the digital euro and how does it work?
• What are the advantages of the digital euro?
• When will the digital euro be in circulation?
• What does it mean for the European economy?
• MONEI at the forefront of the digital euro

What is the digital euro and how does it work?

The digital euro is a proposed central bank digital currency (CBDC) by the European Central Bank (ECB) designed to complement physical cash and enhance the current payments landscape within the eurozone. Unlike cryptocurrencies, which are decentralized and subject to market fluctuations, the digital euro would be issued and regulated by the ECB, ensuring its stability and reliability as a form of currency.

The digital euro is planned to function much like traditional euros but in a fully digital format. It will allow consumers and businesses to make secure and fast payments electronically, either online or offline. Consumers will hold digital euros in a digital wallet, similar to how people use physical cash or bank accounts today. Payments made using the digital euro are going to be instant, and users will likely be able to easily transfer funds without needing intermediaries like banks or payment platforms.

A key feature of the digital euro is that it will work alongside existing payment systems and bank accounts. It’s designed to be a complement, not a replacement for cash or other forms of electronic payments. By offering a secure public alternative, the digital euro could foster greater financial inclusion and offer Europeans more flexibility in managing their money.

What are the advantages of the digital euro?

Faster and more secure payments 

By facilitating instant payments the digital euro will provide greater convenience for users. It’s also backed by the ECB, ensuring top-notch security in all transactions and mitigating risks related to fraud or currency instability.

Financial inclusion

One of the primary goals of the digital euro is to provide greater access to the financial system. For individuals without traditional bank accounts, the digital euro could offer an easy-to-use alternative, increasing financial inclusion across Europe.

Lower transaction costs

By enabling direct payments without intermediaries, the digital euro could lower transaction fees for both businesses and consumers. This could be particularly beneficial for cross-border transactions, which often incur additional fees in the current system.

📚Further reading: Cross-Border E-commerce: Its Importance, Trends, and Future

Greater payment flexibility

The digital euro will work seamlessly across all digital platforms, allowing users to make payments via smartphones, computers, or other internet-connected devices. Whether shopping online or transferring funds, users will have an additional, reliable payment method at their disposal.

Increased transparency

Unlike cash transactions, digital euro payments will offer more transparency and traceability, which is advantageous for tracking financial flows and combating illegal activities like money laundering or tax evasion.

Reduced dependency on private payment providers 

The digital euro will provide a pan-European alternative to private payment providers, reducing Europe’s reliance on non-European tech companies that currently dominate the digital payment space.

When will the digital euro be in circulation?

The implementation of the digital euro is still in its early phases, and its official launch is expected to take place in stages. According to the European Central Bank (ECB), the digital euro project is progressing through several key phases of development:

1. Investigation phase (2021-2023). During this period, the ECB focused on researching the technical, economic, and legal aspects of the digital euro. The goal was to determine the feasibility of launching a central bank digital currency that could function seamlessly across the eurozone. This phase involved testing potential technologies and identifying key design principles for the digital euro.
2. Preparation and prototyping (2023-2025). The next phase, which began in 2023, involves preparing the necessary infrastructure and starting to build prototypes for the digital euro. This includes testing security features, designing user interfaces, and refining the technology that will support the currency’s rollout. Feedback from this phase will help finalize the system's design and address any legal or regulatory concerns.
3. Pilot phase (expected from 2025). Following the development and testing phases, the ECB is expected to conduct pilot projects to assess how the digital euro will work in real-world scenarios. These pilots will involve consumers, businesses, and financial institutions to gather feedback and ensure that the system meets all operational requirements.
4. Full rollout (projected from 2026 onward). If the pilot phase is successful and the necessary approvals are in place, the digital euro could be officially introduced as early as 2026. However, the ECB has emphasized that the digital euro will not replace cash but will serve as a complementary payment method.

The timeline for the digital euro is still fluid and depends on the results of ongoing tests and regulatory decisions.

What does it mean for the European economy?

According to the ECB, the digital euro would provide a pan-European payment solution that operates under European governance, reducing dependence on non-European payment providers like Visa, Mastercard, or big tech companies. This will help to enhance the competitiveness of the European payments industry, fostering innovation by enabling more companies to develop payment solutions that integrate with the digital euro.

The digital euro could help strengthen Europe's financial independence by reducing reliance on private payment providers from outside the region. It would offer an alternative to the dominant companies that currently have a strong influence over European consumers and businesses.

From a macroeconomic perspective, the digital euro could help make the European payments landscape more resilient and adaptable to future financial challenges. In the long term, it could also contribute to boosting economic growth by offering businesses a faster, more efficient way to handle transactions and manage cross-border payments. The success of the digital euro would not only benefit Europe internally but could position the region as a global leader in digital finance and central bank digital currencies.

MONEI at the forefront of the digital euro

As the digital euro progresses, innovative companies like MONEI are playing a leading role in its development and integration. MONEI, a fintech company based in Spain, has already taken significant steps to be part of this digital revolution by working on projects related to the digital euro.

One of the most noteworthy initiatives is EURM, a digital token developed by MONEI, which is currently being tested as a part of the larger digital euro framework. The EURM token is pegged 1:1 to the euro and is being used in real-world trials to assess how a digital currency can function within the European payments ecosystem. This token is designed to bridge the gap between traditional banking systems and the new era of central bank digital currencies, offering both consumers and businesses a smooth transition to the digital euro.

“This is a significant step toward the full digitization of payments,” says Alex Saiz Verdaguer, CEO of MONEI. “We see this pilot as an opportunity to refine and enhance the project. EURM represents groundbreaking innovation, and we have the chance to reshape how money is managed, making payments and transfers more secure, programmable, cost-effective, accessible, and liberalized than ever before.”

MONEI is actively participating in the testing phase of the digital euro, working closely with financial regulators to ensure that the digital euro is user-friendly, secure, and compliant with European standards. MONEI’s involvement underscores its commitment to leading the digital finance landscape in Europe and providing businesses with cutting-edge payment solutions that align with the future of currency.

For businesses, partnering with forward-thinking companies like MONEI can ensure a seamless adaptation to the digital euro when it’s fully rolled out. By staying ahead of technological developments, MONEI aims to offer comprehensive support to businesses looking to integrate the digital euro into their operations, ensuring they remain competitive in a rapidly evolving financial landscape.

As Europe prepares for the rollout of the digital euro, it will be critical for companies in the payment services sector to help both consumers and businesses embrace this new form of currency, paving the way for a more inclusive and innovative financial future.

Alexis Damen

Alexis Damen is a former Shopify merchant turned content marketer. Here, she breaks down complex topics about payments, e-commerce, and retail to help you succeed (with MONEI as your payments partner, of course).