EU Council Greenlights Digital Euro Push, Reinforces Cash Rights

The European Council has formally agreed on its negotiating position for the introduction of a digital euro and the reinforcement of euro cash's legal tender status. The move aims to strengthen the EU's strategic autonomy in the financial sector, enhance economic resilience, and preserve the role of cash. The proposals will now be negotiated with the European Parliament, following a detailed legal and technical framework for the digital euro and cash usage across the eurozone.

The digital euro, if approved, will complement physical cash and be accessible to both the public and businesses for payments across the euro area. It will be backed by the European Central Bank (ECB) and will offer offline and online functionality, ensuring usability even without internet access. The Council emphasized that the digital euro will coexist with private payment methods, such as cards and apps, while prioritizing the preservation of central bank money as a cornerstone of the payment system.

In parallel, the Council's proposals aim to clarify the legal tender status of physical euro cash, ensuring its continued availability and widespread acceptance. Retailers and service providers will generally be required to accept cash, with exceptions for online and unmanned transactions. The Council also mandated EU member states to monitor cash access and implement resilience plans for disruptions in electronic payment systems. These measures seek to uphold consumer choice and guarantee the coexistence of both digital and cash-based transactions.

Legal and Design Framework for the Digital Euro

The digital euro will operate under a legal framework designed to prevent it from being used as a store of value, which could impact financial stability. The Council has proposed limits on the total amount of digital euros individuals and businesses can hold in online accounts or digital wallets. These limits will be set by the ECB but must adhere to an overall ceiling agreed upon by the Council. The limits will be reviewed every two years, allowing for adjustments based on evolving economic conditions and usage patterns.

To ensure fair competition and affordability, the Council also outlined rules for payment service providers (PSPs). PSPs will not be allowed to charge users for essential services such as opening accounts, making digital euro transactions, or funding and defunding digital euro accounts. However, fees for added-value services are permitted. Additionally, interchange and merchant service fees will be capped during a five-year transitional period, based on fees for comparable payment methods. After this period, fees will align with the actual costs of operating the digital euro system.

The Council also addressed access to digital euro interfaces and services by requiring fair access for providers of these services to hardware and software produced by mobile device manufacturers. This ensures that no single entity can monopolize access to the digital euro, promoting competition and innovation in the digital payments sector.

Strengthening the Legal Tender Status of Cash

The Council's proposals on cash aim to clarify and reinforce the legal tender status of euro cash, ensuring its continued use as a payment method. Under the new framework, businesses will be generally required to accept cash, with exceptions for online transactions and unmanned points of sale. This provision reflects the Council's commitment to preserving cash as a widely accepted and accessible form of payment.

To monitor the effectiveness of these policies, the Council has mandated that member states track cash acceptance and availability across their territories. This includes using common and national indicators to identify and address any gaps in access to physical currency. Member states will also be expected to develop cash resilience plans in the event of large-scale disruptions to electronic payment systems, ensuring that the public can continue to use cash when needed.

The Council's position also emphasizes the importance of ensuring that no business is allowed to refuse cash without a valid reason. This measure aims to prevent discrimination against cash users and to maintain a level playing field for all payment methods. While businesses can still express a preference for card or digital payments, they must do so transparently and without discouraging cash use.

Next Steps and Implementation Timelines

With the Council's position agreed upon, the next phase involves negotiations with the European Parliament to finalize the legal framework for the digital euro and cash. Once the legislation is adopted, the European Central Bank will have the authority to decide whether and when to issue the digital euro. The ECB has previously indicated that it aims to launch the digital euro by 2029, following a preparatory phase and pilot testing in 2027.

The implementation of the digital euro will be a phased process. The ECB has already completed the preparatory phase and is now focusing on developing the technical infrastructure required for widespread deployment. If all goes as planned, pilot programs could begin by mid-2027, allowing limited testing with selected users. This will provide valuable insights into the technical, operational, and user experience challenges that may arise before the digital euro is made available to the general public.

The Council's agreement also sets the stage for broader discussions on the future of payment systems in the EU. As the digital euro moves toward implementation, policymakers, financial institutions, and technology providers will need to work together to ensure a smooth transition and widespread adoption. The digital euro is not just a technological innovation but a strategic move to secure the EU's financial sovereignty in an increasingly digital global economy.