CBC says digital euro ‘imperative’ for modern economy

The governor and senior officials of the Central Bank of Cyprus (CBC) presented the next steps in the transition to the second and final part of the digital euro project’s preparation phase on Thursday during a press conference at the bank’s headquarters in Nicosia.

CBC governor Christodoulos Patsalides said that “the adoption of the digital euro is becoming imperative as digital payments are increasing rapidly and the world is becoming more and more digital”.

He mentioned that negotiations for the proposed legislation are underway in the European Council and European Parliament.

The process is expected to be completed within 2026, with the contribution of the Cypriot Presidency of the Council during the first half of that year.

Patsalides first referenced the European Central Bank (ECB) Governing Council’s decision last week to proceed to the second and final part of the digital euro project’s preparation phase.

This decision follows the successful completion of the first part, which began in November 2023 and laid the foundation for a possible issuance of the euro area’s common currency in digital form.

During the first part of the preparation phase, the Eurosystem “conducted extensive user research focusing on vulnerable consumers and small merchants, with the findings indicating the need for a simple, reliable, and secure payment experience,” officials stated.

“It is our view that the development of the digital euro, which will work for everyone, will empower citizens, support innovation, and enhance the resilience of our monetary system,” Patsalides said.

He further stated that money is a public good and central banks are its custodians.

“As the European Central Bank and the Central Bank of Cyprus, we believe that the adoption of the digital euro is becoming imperative as digital payments are increasing rapidly and the world is becoming more and more digital,” he added.

Patsalides continued by saying that the adoption of the digital euro has received the support of the European Council, which calls on the ECB and the other participants in the project to speed up the procedures for the digital euro’s adoption as soon as possible, with final approval resting with the European Parliament.

“The path towards the digital euro is a pivotal development for the modernisation of the European financial system,” the governor said.

“It is an opportunity for greater security, transparency, and accessibility in transactions while strengthening the autonomy, stability, and competitiveness of the economy in the digital age,” he added.

Following this, Stelios Georgakis, head of the CBC’s directorate for payments supervision, presented the next steps in the preparation for the digital euro.

Georgakis stated that the digital euro will complement and not replace cash, transferring its advantages (simplicity, privacy protection, and reliability) to the digital world.

It will be provided free of charge for basic use across the euro area, guaranteed and supported by the ECB.

He added that the digital euro will ease citizens’ daily lives, offering an additional payment option with legal tender status, a feature only central bank money offers, as already provided for in the European legislation on the Single Currency being negotiated in Brussels.

It will also contribute to enhancing Europe’s resilience, as approximately two-thirds of electronic payments in the European Union are currently processed by non-European companies.

“By reducing this dependence, Europe will have greater control and security in the critical field of payments, which is intertwined with our economy and the well-being of citizens in general,” Georgakis said.

The first part of the preparation phase, Georgakis explained, included creating a comprehensive rulebook and standards for implementing the legislation, which will be finally published after the legislation is enacted.

It also involved selecting European providers for developing the platform’s infrastructure and services, with a new cycle of provider selection to follow soon.

Other work included developing a methodology for digital euro holding limits per user to protect financial stability without adversely affecting user experience, and conducting research focused on citizens, small businesses, and vulnerable population groups.

The results, he said, showed both a high willingness to use the digital euro and the potential to promote healthy competition in payments.

Furthermore, an electronic application accessible to all was designed, and an offline function for using the digital euro without an internet connection was developed, which, among other things, enhances the resilience of European payments during crises.

He explained that continuous cooperation also took place between the ECB and market stakeholders.

These include payment service providers, businesses, consumer associations, infrastructure providers, and academics, as well as with co-legislators in Brussels.

“The results of the completed first phase confirm the European Central Bank’s commitment to developing a digital euro that will serve all citizens, promote innovation, and safeguard the resilience of our monetary system,” he stressed.

Discussing the next phase, Georgakis described it as a crucial milestone, bridging design with the initial issuance of the digital euro.

It will build upon the completed work and includes developing the technical infrastructure, conducting tests for the basic functions of the infrastructure, and creating communication structures to ensure the project’s success.

“If the European co-legislators enact the legislation, then the pilot programme and tests could begin thereafter, so that the Eurosystem is ready for a potential first issuance in about four years,” he stated.

“Simply put, we have three key stages: legislation in 2026, pilot phase from 2027, and full technical and operational readiness by 2029,” he added.

“This timeline is crucial for banks, payment service providers, and businesses that are also preparing by assessing infrastructures, designing products, and revising procedures,” he said.

The objectives of the next phase are organised into three main pillars.

They include implementing the technical foundations of the digital euro, close cooperation with payment providers, merchants, and consumers with a targeted information and branding strategy, and technical assistance from the ECB to co-legislators to ensure clarity in drafting the legislation.

Regarding the legislative process, Georgakis stated that enacting and regulating the digital euro is necessary to ensure the euro’s use in the digital world as a single currency and without fragmentation across the euro area.

The European Commission is using this legal basis in the proposed regulation for the digital euro, and the Eurosystem supports this regulation as it will ensure the uniform provision of digital euro services in all euro area countries.

The Eurosystem also supports another European Commission legislative proposal concerning the preservation of easy access to and acceptance of cash, despite the continuous decrease observed in payment usage.

“For this reason, it is vitally important that citizens continue to have access to cash and be able to pay with it,” he stated.

“Only in this way will the true status of cash as legal tender be maintained, according to European Union law,” he added.

Moreover, he reiterated that negotiations for the proposed legislation are ongoing in the EU Council and European Parliament, with the process expected to be completed within 2026, with the contribution of the Cypriot Presidency of the Council during the first half of the same year.

“The digital euro is not just a technological innovation. It signals a tectonic shift since the banknote was conceived,” he said. “It is designed to guarantee that in the ever-evolving digital economy, there is a public, reliable, secure, and inclusive means of payment, supported by the European Central Bank and according to European legislation.”

“The infrastructure will belong to the Eurosystem and will be exclusively contracted to European service providers,” he continued. “The new phase that began a few days ago is preparing us for the future.”

“The course of action is realistic, prudent, and serves the public interest: first we lay the foundations, then we conduct pilot tests, and only after the legislation comes into force will the ECB Governing Council decide on the possible circulation of the digital euro,” Georgakis concluded.

CBC officials also made note of the progress achieved at the EU Council level, aiming for a compromise proposal by the end of the year, while mentioning delays and conflicting views during the corresponding European Parliament procedure.

They expressed optimism, however, that a final legislative text can be reached within the anticipated deadlines.