Is the Digital Euro Project Pivotal to the Current Financial System?

The digital euro is a digital payment and transaction system being considered by the European Central Bank (ECB). It aims to offer people a public digital alternative to private bank deposits. Positive Money Europe supports the idea of a digital euro that is easily accessible, free of charge, and respects privacy. Importantly, it should be different from physical cash like banknotes and coins.

Currently, people have limited options other than using commercial banks to save money, receive salaries, and make daily payments. The money in our bank accounts exists as virtual currency and represents a debt owed by the bank to its customers.

In contrast to private bank-created money, public money issued by central banks is inherently stable. Physical cash, such as banknotes and coins, is the only public money accessible to everyone, including those without bank accounts. The ECB, along with other central banks globally, is exploring introducing a digital version of public money known as the digital euro.

Is the Digital Euro Built on Blockchain Technology?

The rise of digital cryptocurrencies like Bitcoin and the underlying distributed ledger technology (DLT) have spurred central banks worldwide to explore digitizing their monetary systems and introducing central bank digital currencies (CBDCs). The Bank of England was among the early adopters of this trend, investigating the possibility of launching its own CBDC as far back as 2014.

In recent years, this concept has gained significant traction, with Meta (formerly Facebook) announcing in the summer of 2019 its plan to create a digital DLT-based global cryptocurrency backed by various fiat currencies and government bonds.

DLTs, including blockchain technology (DLT), are often considered the technological foundation for digitizing the monetary system and adopting CBDCs in public discussions. They enable the seamless transfer and settlement of assets on integrated platforms, making a strong case for their use.

The digital euro is one such project, and it is indeed based on blockchain technology. It aims to give European citizens free access to a straightforward, widely accepted, secure, and trustworthy means of payment in today’s digital age.

Understanding the Concept of a Digital Euro

Central banks are responsible for creating physical money; in the Eurozone, the European Central Bank (ECB) fulfills this role. However, it’s important to note that the central bank doesn’t create the money you have in your bank account. If your bank faces financial troubles, there’s a risk of losing the funds in your account.

To mitigate this risk, countries like the Netherlands have implemented deposit guarantee schemes, which protect a portion or all of your funds. This safety net provides peace of mind, especially during uncertain times such as financial crises. The use of physical currency has declined in many countries, including the Netherlands.

Over the past decade, electronic payments have surged in popularity. Consequently, the ECB and other central banks have been exploring introducing a digital currency solely in electronic format—a digital euro. But what exactly does a digital euro entail?

A European Central Bank digital euro would still be a euro, similar to physical euro coins and notes. However, it would be a digital currency issued by the Eurosystem, consisting of the European Central Bank and national central banks. 

This digital euro would be accessible to all citizens and businesses. Importantly, it’s not intended to replace physical cash but to complement it. The Eurosystem ensures you can access cash anywhere within the Eurozone.

The Digital Euro and the Changing Financial Landscape

When we consider the development of the digital euro, we’re not just thinking about today’s payment methods; we’re also anticipating how things might evolve in the future.

Imagine a scenario where the central bank only offers physical cash, yet more and more people prefer digital payments, and the only digital money available is privately issued. In such a situation, central bank money could lose its crucial role in payments, and the harmony between public and private money would be at risk. This could destabilize the entire monetary and financial sector.

Additionally, there’s a possibility that non-European digital payment solutions and technologies operated by foreign entities could dominate the payment landscape, as we’ve seen in areas like card payments and online transactions. This risk is compounded by the expansion of payment options by tech giants who could leverage their vast customer base. This could raise concerns about autonomy, privacy, and European sovereignty.

Furthermore, the global monetary system might witness the rise of central bank digital currencies (CBDCs) in major economies. These CBDCs offer efficiency, scalability, liquidity, and security advantages, making them attractive on the international stage. They could also facilitate cross-border payments, enhancing their role as a global payment standard. Not introducing a digital euro could jeopardize the euro’s international influence and pose additional sovereignty risks.

While these scenarios may not be imminent, they could become realities if we don’t take action now. With action, there could be increasing clarity regarding digital money, especially crypto-assets. Unbacked crypto-assets lack stability and scalability, resulting in slow and costly transactions, and some even have environmental and societal drawbacks. 

Stablecoins, on the other hand, are susceptible to runs, as seen with algorithmic stablecoins. To address this, closing regulatory gaps in the crypto-asset ecosystem is crucial. Relying on the efforts of institutions like this Parliament to establish a robust regulatory framework is crucial. 

The central bank has to offer its digital currency to prevent this confusion surrounding digital money. This would meet the growing demand for digitalization and provide a stable foundation in the evolving world of digital finance.

The Eurogroup’s Role in Advancing the Digital Euro

The concept of a digital euro is a prominent topic within the Eurogroup’s agenda. In July 2021, the Eurogroup initiated discussions on the implications of a digital euro, guided by insights from the ECB and the Commission.

These discussions focus on four fundamental aspects

Policy Objectives and Global Context: Understanding a digital euro’s objectives and potential uses in the global arena.

Privacy Considerations: Addressing privacy concerns related to the use of this digital currency.

Impact on the Financial System and Cash Usage: Assessing how a digital euro might affect the financial system and the role of physical cash.

The Broader Digital Euro Ecosystem: Exploring the broader context surrounding the digital euro.

Periodically, the Eurogroup engages with non-euro area member states to evaluate the progress of the digital euro project and its international dimensions, including developments related to central bank digital currency projects beyond the euro area.

The Eurogroup released its initial statement on the digital euro project in February 2022, emphasizing its significance as a European initiative rooted in democratic principles and supported by the European public.

In January 2023, Eurogroup issued a further statement highlighting the potential of the digital euro to enhance the digitalized economy, promote financial innovation, and bring advantages to citizens, businesses, and member states. Importantly, it aims to preserve central bank money’s role as a stable foundation for the monetary system.

Key principles endorsed by the Eurogroup regarding the digital euro include:

  • Complementing, not replacing, physical cash.
  • Ensuring safety, resilience, user-friendliness, and accessibility.
  • Balancing high levels of privacy with compliance in areas like anti-money laundering.
  • Incorporating an offline function to promote financial inclusion.
  • Safeguarding the financial stability of the euro area.
  • Encouraging innovation while avoiding programmable money.
  • Fostering interoperability with other central bank digital currencies (CBDCs).

The Eurogroup will closely monitor the ECB’s retail digital euro project advancements, separate from legislative negotiations under the Council Presidency’s responsibility.

Advantages of a Blockchain-Based Euro

Let’s delve into the advantages of a blockchain-based euro, emphasizing its potential to transform financial systems:

Programmability and Automation: A blockchain-based euro empowers smart contracts and peer-to-peer (micro) payments, even among machines, without the volatility associated with other cryptocurrencies. This means that Internet of Things (IoT) devices, including machinery, cars, and sensors, can seamlessly offer services on a pay-as-you-use basis, especially in the machine-driven economy.

Resistance to Manipulation: Transactions are recorded simultaneously on multiple computers, rendering it nearly impossible to falsify or tamper with transaction data later. This resistance to manipulation is valuable in scenarios where all parties need equal access to information without absolute trust in one another.

Enhanced Security: Unlike traditional financial systems that centralize data on third-party servers, a blockchain-based system distributes transaction data across a vast network of computers. With no single point of failure, this decentralized data storage significantly bolsters the system’s resistance to hacking attempts.

Efficiency Gains: A peer-to-peer blockchain-based euro system can streamline payments by eliminating the need for numerous intermediaries like clearinghouses. This would substantially reduce transaction costs and accelerate transaction processing, benefiting cross-border payments.

Financial Inclusion: A digital euro built on blockchain technology has the potential to promote financial inclusion. It could enable individuals and businesses to access financial services more easily, especially in regions with limited banking infrastructure.

Promoting Efficiency in Europe’s Monetary and Payment System

Ensuring that everyone across the euro area can easily use public money for digital retail payments is about keeping our financial system stable and creating a more efficient monetary and payment system in Europe.

A digital euro would strengthen the euro retail payments market’s strategic independence and resilience. It would safeguard against potential disruptions in euro payments due to geopolitical risks.

Issuing a digital euro serves two important purposes for European sovereignty and stability. First, it supports the growth of European-controlled payment services. Second, it fosters a robust ecosystem for euro retail payments.

To achieve this, private and public entities must collaborate to create a truly pan-European digital payment solution, similar to introducing euro banknotes and coins where everyone worked together. With their expertise in customer onboarding and anti-money laundering, financial intermediaries will play a crucial role in distributing the digital euro.

The aim is for the digital euro to enhance rather than limit services and business opportunities, allowing service providers to expand their offerings and develop new products around it.

Is There a Euro Stablecoin?

The concept of a euro stablecoin involves tokenizing traditional fiat money held in banks, e-money providers, or other financial institutions to create digital assets known as stablecoins. These stablecoins utilize Distributed Ledger Technology (DLT) to facilitate transfers of euros between individuals. It’s important to note that each stablecoin token must be fully backed by a specific amount of money or assets in the issuer’s account.

The key to the stability of stablecoins is their full backing by deposits, which ensures their value remains relatively stable compared to traditional fiat currencies like the euro. Users of stablecoins must trust that the issuers maintain full backing for all tokens and allow for withdrawals even if the tokens are liquidated.

There are two types of stablecoins based on the existing two-tier structure of the monetary system: fiat-backed stablecoins. These stablecoins can be backed by commercial or central bank money. While both types are denominated in euros, there are differences. 

Commercial bank money enjoys some deposit guarantee protection, making it seem as safe as central bank money. However, during banking crises, this distinction becomes significant, as bank deposits in the Eurozone are only guaranteed up to 100,000 euros by deposit guarantee schemes, and only a fraction of bank deposits are backed by central bank money.

In some stablecoin projects, customer funds are fully backed by central bank money, held in an account with an intermediary or trustee. This arrangement ensures the stablecoin project’s customer account balances are fully secured. 

It resembles a central bank deposit, but intermediaries or trustees secure it and can be transferred using a DLT system. This type of stablecoin is known as a synthetic Central Bank Digital Currency (CBDC), as it indirectly accesses central bank money.


The world of digital finance is rapidly evolving, with the concept of a digital euro and the rise of stablecoins based on Distributed Ledger Technology (DLT) playing significant roles in reshaping our monetary landscape. 

The advantages of a blockchain-based euro are clear: offering programmability, security, resistance to manipulation, and efficiency gains. These innovations are poised to transform financial transactions, particularly in the context of the machine economy and cross-border payments.

Moreover, the Eurogroup’s active involvement in developing a digital euro underscores its commitment to ensuring a resilient and efficient monetary and payment system in Europe. Collaboration between public and private entities is essential for successfully implementing a digital euro, mirroring the coordinated efforts during the transition to euro cash.

As we explore these technological advancements, addressing regulatory gaps, promoting financial inclusion, and safeguarding privacy is crucial. The potential benefits of a digital euro are far-reaching, from strengthening the EU’s strategic autonomy to fostering financial sector innovation and enhancing the lives of citizens and businesses.

The digital euro and stablecoins represent promising advancements in the world of finance, offering new opportunities and challenges that will shape the future of monetary transactions and payments. Embracing these innovations while maintaining a strong regulatory framework will be crucial in reaping their full benefits.


What is a digital euro?

A digital euro is a digital form of the European currency, the euro, issued by the European Central Bank (ECB). It's designed for electronic transactions and payments.

How does a digital euro work?

Like physical euros, a digital euro can be stored in a digital wallet and used for various transactions. It's a secure and convenient way to make payments.

Is a digital euro the same as cryptocurrency?

No, a digital euro differs from cryptocurrencies like Bitcoin. It's a central bank-issued digital currency, whereas cryptocurrencies are decentralized and not backed by any central authority.

Will a digital euro replace physical cash?

No, the digital euro complements physical cash, not replace it. Cash will still be available for those who prefer it.

What are the benefits of a digital euro?

Benefits include faster and more efficient payments, enhanced security, and adapting to a digitalized economy. It also supports financial stability and sovereignty.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

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