Filenews 1 May 2025 - by Theano Thiopoulou
The use of cash was for many years the medium on which world trade was based. However, lately the undisputed dominance of cash has been receding in the face of the development of digital technology.
Today we are talking about the digital euro and as Stelios Giorgakis, Director General of the Central Bank's Directorate-General for Payments Supervision, says in his article, published on the website of the Central Bank, "in a world that is becoming increasingly digital, with the digital euro our goal is to complement banknotes and coins, ensuring that citizens and businesses have access to a secure and universally acceptable form of money".
He explains in his article that "apart from the consequences of the continued decline in the use of cash and the digital transformation that has made payments an integral part of our daily lives, the established role of banks is being questioned mainly due to the entry of new players – and outside the field of traditional banking".
Mr. Giorgakis points out that these include both issuers of crypto-assets and large technology companies, which, due to a strong presence in the market, may limit competition and the efficiency of the European payment system. In the event that central banks overlooked such potentially disruptive developments, we might be witnessing an oligopoly of private money issuers. Consequently, preparations for the introduction of the digital euro aim to maintain the healthy coexistence of central bank money and private money: both must remain interchangeable and at the same time recognisable."
Interest-free digital euro
The Eurosystem states in its article "recognises the key role of banks in facilitating payments, transactions and the provision of credit to firms and households, as well as the importance of bank deposits in providing liquidity to the financial system. This is exactly the role that banks will retain with the introduction of the digital euro. In order to maintain this existing order, citizens will be able to keep a limited amount of digital euro in their account, without it generating interest."
The European Central Bank notes that "it is working closely with financial institutions to regulate the holding limits of a digital euro based on three main pillars: usability, monetary policy and financial stability. By adopting these safeguards, the Eurosystem aims to strike a balance between fostering innovation and maintaining the stability of our financial system. It is important to note that holding limits will not restrict the making of payments. By linking the digital euro wallet to a bank account, consumers will be able to pay for transactions that exceed the holding threshold without having to hold positive balances in a digital euro. On the other hand, while merchants will accept payments in digital euro, it will not be possible to hold balances in it, thus keeping banks' corporate deposit base intact. After all, the digital euro is designed as a means of payment and not as a savings or investment tool."
In his article, Mr. Giorgakis also highlights the challenges that banks may face. "It is also important to keep in mind that there is always the possibility that bank deposits will be transferred to providers of stablecoins or other digital assets. However, thanks to the carefully considered risk mitigation actions, the digital euro is not expected to be a major source of concern for bank financing. After all, banks always have the option to increase deposit rates in order to avoid losing deposits as a source of refinancing in the long term."
The aim of the article is to preserve the existing order of our financial system. Both banks and other supervised entities, such as payment institutions and e-money institutions, will distribute the digital euro to their customers without bringing about changes to existing customer relationships.
