On 25 September 2023, the Council of the European Union (Council) Working Group on Financial Services held a discussion on the European Commission (Commission) proposal on the establishment of a digital euro.

Since 2021, the Commission and the European Central Bank (ECB) have been preparing the establishment of the digital euro. Considerate of the fact that more and more transactions are conducted digitally, and central bank money, as opposed to private money, is currently only distributed through coins and banknotes, the Commission and the ECB feel that a digital euro would offer an electronic means of payment that would be accessible to everyone throughout the euro area, thereby complementing cash. The digital euro, which would be issued by the ECB also has a role to play in the strategic autonomy of the EU and the international strength of the euro. Following a long preparatory phase, that included public consultations, the Commission published its legislative proposal on the establishment of the digital euro on 26 June 2023.

In terms of content, the Commission proposes to design the framework for the digital euro in the following manner:

  • The digital euro will have legal tender, alongside the euro. This entails its mandatory acceptance by payees (with limited exceptions). The convertibility of digital euro and euro each into each other is at par.
  • The digital euro will be used in the Eurozone and is available to natural and legal persons for the purpose of retail payments.
  • The ECB will be responsible for the issuance of the digital euro, alongside the central banks of the euro area Member States.
  • Payment services providers (PSPs) authorised in a Member State whose currency is the euro may provide digital euro payment services, acting as an intermediary between the ECB and the digital euro user. PSPs authorised outside the eurozone may also provide these services by means of free establishment or free provision of services under the Payments Services Directive II (PSD2).
  • To avoid financial instability, the ECB can develop instruments to limit the use of the digital euro as a store of value, and this can include holding limits.

We understand that the Council Working Group on Financial Services (Working Group) used the 25 September meeting to discuss a number of issues that were raised by Member States concerning the first two Chapters of the Commission’s proposal, which cover  scope and definitions, and the establishment and issuance of the digital euro. We understand that the Working Group, among other things, considered the following issues:

  • Whether the definition of “digital euro user”, which is currently defined as “anyone making use of a digital euro payment service in the capacity of payer, payee, or both”, should be amended to clarify that a person holding digital euro without making payment also falls within the definition of “digital euro user”, and whether it should be clarified that the definition includes natural as well as legal persons.
  • Whether the definition of “comparable digital means of payment”, the scope of which has important implications for the exceptions to the mandatory acceptance of digital euro, and which is currently defined as “debit card payments and instant payments at the point of interaction but excluding credit transfer and direct debit that are not initiated at the point of interaction”, should be supplemented by a clarification on why credit card payments fall outside the scope of the definition. In addition, we understand that some of the Member States would like to add a definition of the elements that need to be considered to deem a given digital means of payment to be comparable to digital euro payments.
  • As stated above, PSPs will act as an intermediary between the ECB and the digital euro user. For that reason, there is no contractual relationship between the ECB or national central banks and the digital euro user, something that is clarified in the legislative proposal as well. Still, the Commission proposal states that “(t)he digital euro shall be a direct liability of the European Central Bank or of national central banks towards digital euro users”. We understand that the Council is looking at what the legal consequences of the ECB’s or national central banks’ direct liability will be, and how it interacts with the lack of a contractual relationship between the user and the central bank.

Next steps

The Working Group is still at the start of its process in considering the digital euro proposal and will take the coming months to negotiate a common negotiating position. Meanwhile, the European Parliament Economic and Monetary Affairs (ECON) Committee has appointed German centre-right MEP Stefan Berger as the rapporteur on the file. Negotiations on the file in the ECON Committee should start in the coming weeks or months.