Digital Euro Association Blog

On The Demand For A Digital Euro

The rapid technological evolution and the ongoing digital revolution are inspiring global interest in Central Bank Digital Currencies (CBDCs), which are projected to redefine the landscape of international finance. Among the global players, the European Central Bank (ECB) is actively researching the potential development and implementation of a digital euro, a form of CBDC. A digital euro is seen as a way to modernize Europe's financial infrastructure, offering increased convenience, reduced transaction costs, and improved financial inclusion. Nonetheless, it seems that the ECB has disregarded one critical element in the overall digital euro development process: the adoption by the public of the digital euro has been either given for granted or poorly considered. Especially in an environment where cash and private forms of digital money are already fully established, it seems fundamental to understand what drives the demand for a new form of money and to forecast the level of adoption of the digital euro by the public.

Anderson (1917) described money as either a unit of account, a medium of exchange, and a store of value. In contexts without money, these functions alone would have been enough to guarantee the adoption of a form of money from economic agents. But in a system where monetary means already exist, these qualities may not be enough to guarantee the broad use of digital public money. Zamora-Pérez, Coschignano and Barreiro (2022) reviewed 15 papers on CBDC and found four factors determining a CBDC’s success: (i) the digital euro must be easy to use, facilitate low-cost transactions, and guarantee accessibility irrespective of geographical location. BIS (2022) suggests that the more people use a particular form of money, the more valuable it becomes for others to use it as well, producing a network effect. Furthermore, Mancini-Griffoli et al. (2018) suggest that users of the new form of money should be able to enjoy some new and unique benefits that other payment means do not offer if the new form of money wants to be competitive. (ii) A key requirement from the public is that the digital euro should offer full anonymity to protect users' privacy. (iii) The potential for the digital euro to bear interest could make it more appealing to users, but it's crucial to strike a balance where the digital euro neither excessively encourages savings, disrupting the economic balance, nor dislodges the traditional banking system, creating systemic risk. (iv) Citizens should have relatively high trust in the monetary, financial and political institutions and possess financial literacy to understand the new means of payment, its features and implications.

By comparing these four driving factors of the success of a CBDC to the expected design features of the digital euro, we can understand if the proposed digital euro can fulfil these requirements to secure mass adoption and acceptance.

  1. Usability: in designing the digital euro, the ECB aims to support various forms of transactions, including P2P, B2P, B2B, and G2P. The intention is to foster wide usage and universal acceptance by developing a pan-European rules-based framework. The digital euro will also ensure a low cost of usage for merchants. However, the absence of a viable offline solution could potentially limit its usability. Yet, the benefits offered by the digital euro do not appear to be superior to existing payment systems, which offer broad acceptance, user-friendliness, and increased security. Although the ECB is marketing the digital euro as a safer option than private banks, the European Banking Authority already offers a robust protection scheme, guaranteeing deposits up to 100,000 euros.

  2. User data protection: despite the strong desire of European citizens to protect their privacy, the ECB believes that there exists a trade-off between some public objectives and full anonymity, especially when it comes to money laundering, tax evasion and terrorism financing. Therefore, the ECB is considering ensuring anonymity and privacy for low-value/low-risk (amount still to be decided) transactions only. Furthermore, the ECB plans to adopt the same technology and privacy rules that private payment entities offer for all other transactions, which will allow the recording of all user’s transactions. If this decision will be adopted, cash will remain the most anonymous payment means, and the digital euro will disappoint citizens’ expectations.
  1. Interest rate: the ECB is considering the trade-off between imposing a tiered interest rate system on deposits and avoiding making the digital euro a form of risk-free investment. Furthermore, by issuing an interest-bearing digital euro, the ECB would enter into competition with other private financial intermediaries over depositors’ money, potentially disrupting the private banking business model. A choice has not been made yet.
  1. Trust in the public system: based on the latest data[1] released by the Eurobarometer, in the EU27 only 34% of European citizens trust their governments and 47% the European Central Bank. The recent inability of the ECB in foreseeing and managing high levels of inflation will depress the trust of the Eurozone citizens towards the Central Bank. As reported by van der Linden (2022), also the private banking system is not perceived as trustworthy: a decade after the Great Recession, 66% of British citizens believe that private banks do not act in the system’s best interests, and 72% argue that the banking system should be subject to stronger fines in case of misconduct.
Finally, financial literacy, which is needed to ensure proper adoption by the public, can vary based on specific factors: age and income levels are already good predictors of this aspect. But in the case of the digital euro, users should also be able to understand the difference between private digital money and public digital money: the OECD (2020) shows that financial literacy in 17 selected European countries is quite low and that a big disparity exists between countries. Hence, even though the digital euro is brought as a tool that would increase financial inclusion, it could exacerbate financial exclusion and worsen the already high levels of inequality within a country and between European countries.


To conclude, this article contributed to the discussion on public digital money by evaluating the factors that determine the success of a CBDC and the digital euro in particular. The discussion around the digital euro has intensified since the ECB initiated its research, but key issues remain unresolved. It is still uncertain whether the digital euro offers distinct advantages over existing payment methods that would encourage a transition. The public's desire for an anonymous and privacy-friendly digital euro seems to clash with potential regulatory requirements and technological constraints. The ECB has yet to definitively express its stance on interest-bearing options for the digital euro. Furthermore, low trust in European institutions, the banking sector, and a widespread lack of financial literacy could undermine the project. The ECB needs to build trust with European citizens and consider reviewing its mandate to emphasize the protection and enhancement of public wealth. Moreover, it should launch awareness campaigns to improve societal understanding of the monetary system and the potential impact of the digital euro. As the digital euro approaches its testing phase in 2023, it's crucial to slow down and reconsider the objectives of the digital euro in society before advancing further. Moving ahead hastily could risk jeopardizing the entire project.

Read the full article here.

This article was prepared by the author/s. The views expressed in this article are the author’s own and do not necessarily reflect the views of the Digital Euro Association.


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