The digital euro, explained

The European Central Bank has been exploring the idea of a digital currency for several years. If Brussels adopts all the necessary regulations by 2026, the digital euro could be in circulation by 2029. So, what exactly is the digital euro, and how does it differ from existing payment methods, such as cash or cards? Labrini Zarpala, Assistant Professor of Finance at Utrecht University tells us all about this potential new means of payment. 

What is the digital euro?

The digital euro would be the digital equivalent to the physical euro banknotes and coins we are all familiar with. Just like cash, the digital euro would be issued by the European Central Bank (ECB) together with the national central banks of the euro-area countries.

“The digital euro would offer people and businesses in the euro area a publicly issued digital payment option alongside cash,” says Labrini Zarpala, Assistant Professor of Finance at Utrecht University School of Economics (U.S.E.). “According to the ECB, it is intended to complement cash, not replace it. In an increasingly digital economy, it could make transactions faster, safer and more integrated across Europe.”

A digital euro would reduce dependence on non-European companies.

Why is Europe considering a digital euro?

For various reasons, according to Zarpala. “First, people are using cash less often, and digital payments are becoming the norm, especially since the COVID-19 pandemic. Developing a digital euro can be seen as an adaptation to changing technologies and payment preferences.”

Another reason is Europe’s dependence on foreign payment infrastructure. “About 70 percent of digital transactions flow through non-European companies, such as Visa or Mastercard. A digital euro would reduce dependence on companies based outside the EU and strengthen Europe’s strategic autonomy in payments. It would also stand as a powerful symbol of European unity in the digital age.”

Rising geopolitical tensions may have helped accelerate the push for a European, public alternative to today’s predominantly private, and non-European payment infrastructure.

Finally, the push for a digital euro reflects a global trend. “More than 130 countries are exploring central bank digital currencies (CBDC), and a few — including Jamaica, Nigeria, and The Bahamas — have already launched them. This reflects a recognition among central banks that public money must adapt to an increasingly digital economy.”

How would payments with digital euros work?

Using the digital euro would be similar to withdrawing money from an ATM. But instead of holding physical banknotes, you would store the money in a digital wallet. You would open a digital euro wallet through your bank or another approved provider, transfer money from your bank account into the wallet. From there, you could make instant payments across the euro area, even if you are offline.

Imagine you are in Lisbon and want to buy a coffee. You open your digital euro wallet and tap your phone on the payment terminal. Within seconds, the digital euros move directly from your wallet to the café’s account, much like handing over cash – but in electronic form. Let’s say later in the day you order dinner online and pay with digital euros. In this case, your account would be debited only when your meal arrives.

“In practice, the digital euro would mean instant payments everywhere – from cafés to mobility providers or even from person to person– without needing multiple payment apps,” explains Zarpala. “It would also allow conditional payments upon delivery, automatic digital receipts, and offer simple, secure wallets for children, students or people without a traditional bank account.” 

How is that different from current digital payments?

When you pay by card nowadays, several private card networks, such as Visa or Mastercard, help process the transaction. These companies charge fees to merchants for handling the payment. The digital euro would work differently. Instead of relying on private international networks, it would use European public infrastructure. Users would be able to pay with digital euros without fees, and merchant fees would be regulated and likely lower than current card payment charges.

What about concerns over privacy?

Critics have voiced concerns that governments could track every digital euro payment. Are those fears justified?

Offline payments could offer a level of privacy closer to physical cash.

“The ECB would not have access to personal transaction data. It would not be able to identify who made a specific payment or what exactly was purchased. Offline payments could offer a level of privacy closer to physical cash,” notes Zarpala. “At the same time, complete anonymity is hardly possible - and for good reason: some rules are needed to prevent fraud and money laundering. That’s why the ECB may set limits on offline payments.” 

Where does the proposal for a digital euro stand?

On February 10, 2026, the European Parliament endorsed the ECB’s plan for a digital euro with both online and offline functionality. But the project still needs EU legislation to define rules on issuance, privacy, and legal status. If EU lawmakers adopt the necessary legislation by 2026 and the ECB gives the green light, development and testing could start. In that case, Europeans could realistically start using digital euros in 2028 or 2029.

"A digital euro can’t just be switched on,” says Zarpala. "It needs a clear legal framework about the role of banks and payment providers, and how privacy protections will coexist with anti-money laundering law".

Will the digital euro succeed?

“It’s too early to say, but research suggests that adoption will depend on clear advantages for users over existing payment methods, such as convenience, privacy, and seamless online and offline usability. Banks and payment service providers will also need attractive economic incentives to distribute and support the digital euro. Without a compelling value proposition for both, achieving the necessary scale and acceptance will be challenging,” Zarpala concludes.