A recent study by the European Central Bank (ECB), using statistical data from regular surveys it performs on the payment attitudes of consumers, suggests that, although there is undeniable decline in the use of cash for transactions, there is high engagement of the younger population with cash for later use, i.e. for safekeeping.
The study further highlights that times of geopolitical tension and events giving rise to the sentiment of uncertainty, such as a pandemic or a large-scale cyber-attack, increase the perceived importance of cash among European citizens.
Despite the persistent use of cash, the ECB has committed to adopting the digital euro in response to, among others, the digitization trends in the financial services sector and potentially the 2024 Draghi Report on Competitiveness, which urged the need for diffusing digital technology into the economy. The pre-launch era has, thus, already started with pilot schemes and preparatory work, for the circulation of digital currency in the EU, which will coexist with banknotes and coins, at least in the foreseeable future.
What is the digital euro?
It is a proposed stable digital currency, and thus not decentralized nor volatile, since its value will be connected to the euro. It will be issued and backed by the ECB and distributed by banks and payment service providers through a digital wallet system, whereby, as an alternative to depositing and exchanging banknotes, persons will be able to hold euros in electronic form and transfer them electronically. The digital euro is being designed to support different payment methods, including online and offline device-to-device transactions, and in this way facilitate widespread usability in everyday life.
The primary concern commonly being voiced on the issuance of central bank digital currency (CBDC) is the impact on the euro payers’ fundamental rights to private life and protection of personal data provided by the respective European Charter. Will we surrender our privacy to the financial intermediaries and a sovereign institution, which will in effect be able to track our mobility through financial monitoring?
Other issues advocating against the viability of CBDC include the potential disruption that may be caused in case of system manipulation by cybercriminals and the use of the digital euro to promote money laundering and terrorism financing.
“When the time is right”
A number of regulatory tools have been preparing the ground for the safe adoption of digital currency in the EU.
Following global challenges in the use and safekeeping of personal information, with the leaking of taxpayers’ lists, investment data and corporate papers, the prudent use of personal data would have to be secured prior to exploring the use of CBDC. As such, we had the enactment of the General Data Protection Regulation (GDPR) in mid-2018 to monitor the legal and proportionate use of personal data.
Additionally, and in hindsight after detrimental cyber-attacks, it became mandatory for financial intermediaries to formalise the fortification of their digital vulnerabilities, so as to further engage in discussions over the digital euro with confidence that its adoption would not risk European market stability and integrity. To this end, the Digital Operational Resilience Act (DORA) came into effect in January 2025, with the target of not merely adopting robust ICT standards and practices, but also effectively monitoring over-reliance on third-party ICT service providers across the EU.
A continuous effort which adapts to the evolving financial and corporate landscape is the combat against money laundering and terrorism financing. The 5th and 6th AML Directives have incorporated procedures corresponding to the use of digital wallets and the rise of cryptocurrencies.
Whilst the infrastructure of the digital euro is being created, the ECB is constructively processing feedback received, and several features have already been proposed to comfort future users of the digital euro. Such features include:
- a tiered system of anonymity, where smaller transactions may be conducted with a higher degree of privacy, while larger transactions will require identification in line with the AML / CTF regime; and
- financial intermediaries processing personal data for compliance and customer management and sending the ECB pseudonymized or aggregate data with which individuals will be unidentifiable.
Fintech companies are already offering fast, cheap and secure wallets for cash-less deposits and transactions. Cryptocurrencies are rapidly expanding to the extent that they may even threaten governments’ monetary sovereignty. Countries such as China, have by now recorded transactions with CBDC of over 1trillion euro in value, and they are leading the way with advanced retail CBDC with the aim of getting at the forefront of global trade settlement.
Survey findings of the Bank for International Settlements and the ECB are consistent in that a massive, rather than slow, decline in the use of cash, is an unrealistic maximalist position. Due to the ageing population within which cash has a deep meaning of security, the rising perceived importance of cash during turbulent times, and the use of cash as a store of value even among young people, digital currencies are expected to complement banknotes and not replace them for many years to come.
Any development of the current European payment system must prioritise user privacy to eliminate state surveillance concerns, foster public trust and encourage widespread adoption. Regulatory measures dictated by GDPR, DORA and the updated AML/CFT directive, have embraced digital and technological advancements and paved a secure way for the adoption of CBDC in Europe.
Should a meaningful balance between further integration of digitization in the European payment system and respect to the socioeconomic customary behaviour of European citizens be achieved, it will be reflected in appropriate legislation in 2026 and thereafter in the issuance and use of the digital euro by 2029.
*Andria Koukounis, Financial Services, Funds and Capital Markets Leader, EY Law - Koukounis, Karaolis LLC
