ECB’s digital euro plan faces strong resistance from European banks

The European Central Bank’s (ECB) plan to launch a digital euro by 2029 has encountered strong opposition from EU lawmakers and the European banking sector.

Ahead of a key European Parliament session on the project on Wednesday, 14 lenders, including Deutsche Bank, BNP Paribas, and ING, warned that the digital euro could undermine private sector payment systems.

The 14 banks have collaborated to create a private sector entity that will compete with US payment companies like Mastercard, Visa, and PayPal. The service, named Wero, was launched last year.

“The current design of a retail digital euro addresses largely the same use cases as private solutions, without offering clear added value to consumers,” the banks stated ahead of Wednesday’s session.

Fernando Navarrete, a Spanish conservative lawmaker appointed by the European Parliament to evaluate the digital euro, is also advocating for a significantly scaled-down version of the project.

The ECB began evaluating a digital central bank currency in 2020. Last week, its governing council decided to take the necessary steps to launch the first digital euros “in 2029,” with a pilot program in 2027.

The legislation underpinning the project was proposed by the European Commission in 2023. The project can only proceed if EU governments and the bloc’s parliament give it the green light, as current laws only authorize the ECB to issue physical cash, not digital tokens.

ECB executive board member Piero Cipollone argued in September that the digital euro is needed to protect “our freedom, our autonomy, and our security” due to the dramatic decline in cash usage and the dominance of US payment providers.

The share of cash used in stores fell from 72% to 52% in the five years leading up to 2024. The digital euro has gained impetus from the rapid development of US-backed stablecoins, which many in Europe believe could threaten the role of the euro.

Last month, the 20 finance ministers of the eurozone member states supported the ECB’s digital euro plans, welcoming the “recent progress in advancing the digital euro project” and urging lawmakers in Brussels to swiftly enact the necessary legal changes.

In a report published last week, Navarrete argued that the digital euro should only be used as a substitute for coins and banknotes in payments without an internet or mobile connection, but not as a real-time digital payment tool for other transactions, including online, as envisioned by the ECB.

Navarrete warns in his report that online payment functions could create a “parallel payment ecosystem that prevents private solutions from reaching a pan-European scale.”

He advocates for the online version of the digital euro to be launched only if European private sector competitors to US payment providers fail.

Navarrete told the Financial Times that the private sector is “closer than ever” to creating a competitive payment system, adding that “a responsible policymaker’s approach should be to set a framework to maximize the chances of this happening,” while also being “ready with a fallback option.”

It is unclear whether Navarrete’s views are shared by a majority in the parliament, as social democrats, liberals, and greens, as well as members of his own conservative group, support the digital euro.

His assessment was welcomed on Tuesday by the German Banking Industry Committee, the country’s largest banking lobby group.

The committee described the current plans as “too complex” and “too expensive,” stating that they offer “no tangible benefit for consumers.”

In a study commissioned by European banks, PwC estimated that the launch of the digital euro could cost the financial sector €30 billion.

The ECB rejected this estimate, stating the cost would be just under €6 billion.

“Twenty-five years after the introduction of the euro, there is still no pan-European competitive payment solution,” said a senior central bank official, adding that even the successful establishment of a domestic private sector entity to rival Visa and Mastercard would not be a permanent solution to the problems, as its ownership could change.

“Visa Europe used to be European, but it was eventually sold,” the central bank official said.