Recent Developments in the Digital Euro Project

In recent years, the increase in the use of cryptocurrencies has raised the risk of reducing the effectiveness of the European Central Bank’s (Bank) monetary policies. Accordingly, the project of issuing a “digital euro” in July 2021 was put on the agenda by the Bank in order to strengthen the monetary and payment systems. The digital euro refers to the electronic version of the euro banknotes and coins currently in use. Moreover, the digital euro was intended to enable individuals and private companies to hold accounts directly with Bank for the first time.

Following the announcement of the relevant project, one of the curious issues was what the legal status of the digital euro would be and whether the digital euro would replace cash. In the statement made by Bank; it was stated that the digital euro complements cash, and that cash will continue to exist in European Union countries using the euro currency. In addition, it was intended to provide the digital euro with the status of a legal payment instrument.

In recent months, the European Parliament has published a report on the relevant subject. In the report published by the European Parliament dated 19 April 2023 (Report), the issue of Central Bank Digital Currency (CBDC) was discussed. CBDC refers to digital currencies issued by the authorised central bank in accordance with the applicable legislation.

Report contains details on the eagerly awaited regulations in EU and provides insights into the digital euro project. Report includes ten key issues that the digital euro may possibly face, and under each heading, the importance of the issue, whether it has been sufficiently researched, and what should be done if it has not been adequately analysed. In addition, the Report underlined the necessity for Bank to continue its research on the digital euro.

You can reach the full text of Report published by the European Parliament here.

The meeting on the draft legislation on the confidentiality and distribution of the digital euro, which was scheduled to be held by the European Commission on 28 June, has been postponed. The draft legislation was expected to prohibit the payment of interest or surcharges on the use of the digital euro. However, the draft legislation aimed to make the digital euro primarily a retail payment option, not only for banks, and to ensure that it is accessible to public. In addition, it was expected that it would not be mandatory to accept digital euros unless a special agreement was concluded in advance; digital euros were expected to be convertible into banknotes and coin.

The European Commission has not yet announced a new date for the meeting on the digital euro draft legislation. Nevertheless, in case the draft digital euro legislation is provided with the green light when the meeting takes place, it will completely change the dynamics in the relevant sector.

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