Strengths and limits of the Central Bank’s digital euro

In Octo­ber 2025, the European Cent­ral Bank could take a decis­ive step for­ward with the intro­duc­tion of the digit­al euro, the cent­ral bank digit­al cur­rency (CBDC). This pro­ject, which is inten­ded to com­ple­ment exist­ing cash and elec­tron­ic pay­ments, has recently made sig­ni­fic­ant pro­gress. In Decem­ber 2024, the ECB pub­lished its second pro­gress report¹, detail­ing the pro­gress made in the pre­par­at­ory phase of the digit­al euro. The report high­lights key aspects such as pri­vacy pro­tec­tion, hold­ing lim­its and off­line pay­ments. At the same time, a study pub­lished in March 2025 reveals that 58% of European cit­izens think that they are “unlikely or very unlikely” to use the digit­al euro for their every­day pay­ments².

How will this innov­a­tion fit into Europe’s fin­an­cial archi­tec­ture? What impact will it have on the tra­di­tion­al bank­ing mod­el, which relies heav­ily on depos­it-tak­ing? Can it really offer a cred­ible altern­at­ive to private ini­ti­at­ives and digit­al cur­ren­cies from oth­er eco­nom­ic powers?

Under­ly­ing these ques­tions is the need to redefine the bal­ance between fin­an­cial sta­bil­ity and innov­a­tion, reg­u­lat­ory con­trol and pub­lic accept­ance. Bey­ond the tech­nic­al chal­lenges, the digit­al euro is part of a broad­er trans­form­a­tion of mon­et­ary and bank­ing mech­an­isms, in which the dynam­ics of trust, access and inter­me­di­ation are being fun­da­ment­ally rethought.

These issues require a nuanced approach, com­bin­ing ana­lys­is of mar­ket struc­tures with an under­stand­ing of mon­et­ary and reg­u­lat­ory policies. It is pre­cisely in this area that the insights provided by Juli­en Prat, an eco­nom­ist spe­cial­ising in decent­ral­ised mar­kets, and Jéza­bel Coup­pey-Soubeyran, an expert in mon­et­ary policy and bank­ing reg­u­la­tion, converge.

The intro­duc­tion of a CBDC raises ques­tions about its impact on fin­an­cial sta­bil­ity, par­tic­u­larly through the risk of dis­in­ter­me­di­ation. If a sig­ni­fic­ant pro­por­tion of depos­its is trans­ferred to the CBDC, banks’ lend­ing capa­city could decline, affect­ing the fin­an­cing of the real eco­nomy. A report by the Banque de France indic­ates that, in an extreme scen­ario, the sub­sti­tu­tion of depos­its would reduce bank fin­an­cing resources by 10% to 15%³.

“The main risk is that indi­vidu­als will prefer to depos­it their money dir­ectly with the ECB rather than with com­mer­cial banks. If too large a share of bank depos­its shifts to the ECB, this could weak­en the eco­nom­ic mod­el of banks, which use these depos­its to fin­ance their loans,” explains Juli­en Prat. He also points out that “in the event of a bank run, people could want to trans­fer their money en masse from com­mer­cial banks to the ECB, which would increase the instabil­ity of the system.”

To lim­it this risk, the mon­et­ary insti­tu­tion plans to intro­duce a cap on digit­al euro accounts, “which would pre­vent a total shift of funds and lim­it the impact on fin­an­cial sta­bil­ity,” adds the researcher.

How­ever, this pre­cau­tion is not without con­tro­versy. Jéza­bel Coup­pey-Soubeyran points to the influ­ence of the bank­ing sec­tor in these decisions: “The idea that the digit­al euro could under­mine fin­an­cial sta­bil­ity is primar­ily put for­ward by com­mer­cial banks, which are reluct­ant to adopt it, par­tic­u­larly for the gen­er­al pub­lic.” She regrets that this cap pre­vents the digit­al euro from offer­ing dir­ect access to cent­ral bank money, which “could restore a genu­ine pub­lic ser­vice for money.”

Fur­ther­more, CBDCs could improve the trans­par­ency and trace­ab­il­ity of trans­ac­tions. Thanks to the integ­ra­tion of tech­no­lo­gies such as block­chain, fin­an­cial flows would be recor­ded in a decent­ral­ised and secure man­ner, mak­ing it easi­er for reg­u­lat­ory author­it­ies to detect fraud and mon­it­or sys­tem­ic risks. This improved trace­ab­il­ity could strengthen con­fid­ence in the fin­an­cial sys­tem, provided that pri­vacy issues are also taken into account⁴.

How­ever, this is a major point of con­cern, as Juli­en Prat points out: “The main issue is trans­ac­tion con­fid­en­ti­al­ity. With a digit­al euro, pay­ments could be tracked dir­ectly by the ECB, rais­ing con­cerns about fin­an­cial sur­veil­lance.” This point is tempered by Jéza­bel Coup­pey-Soubeyran, who believes that “trans­ac­tion trace­ab­il­ity already exists today, since most pay­ments are made by bank trans­fer or bank card. The loss of con­fid­en­ti­al­ity asso­ci­ated with the digit­al euro would there­fore be marginal.”

In terms of mon­et­ary policy, CBDCs offer new levers for inter­ven­tion. For example, they could enable dir­ect cash trans­fers to house­holds in times of crisis, thereby improv­ing the trans­mis­sion of ECB policies. “The digit­al euro would open up the pos­sib­il­ity of imple­ment­ing “heli­copter money” oper­a­tions, which involve trans­fer­ring cent­ral bank money dir­ectly to house­holds or busi­nesses in the event of a crisis, par­tic­u­larly dur­ing peri­ods of defla­tion­ary pres­sure,” explains Jéza­bel Coup­pey-Soubeyran. How­ever, she believes that “one lim­it­a­tion of this mech­an­ism is the lack of con­trol over the use of the funds. Some of the money dis­trib­uted could fin­ance expendit­ure that is con­trary to the green trans­ition. How­ever, heli­copter money could be envis­aged to fin­ance cer­tain invest­ments neces­sary for the trans­ition, in par­tic­u­lar those whose lack of prof­it­ab­il­ity jus­ti­fies sub­sidy fin­an­cing. This opens up new horizons.”

Fur­ther­more, by com­ple­ment­ing tra­di­tion­al instru­ments, CBDCs could facil­it­ate the imple­ment­a­tion of meas­ures such as effect­ive neg­at­ive interest rates, although this would require an adapt­a­tion of exist­ing reg­u­lat­ory frame­works⁵. In addi­tion, Jéza­bel Coup­pey-Soubeyran expresses reser­va­tions about “this argu­ment for tax­ing depos­its, which is very dif­fi­cult to defend.”

The Cent­ral Bank, in col­lab­or­a­tion with European insti­tu­tions, is devel­op­ing a strict reg­u­lat­ory frame­work for the digit­al euro, includ­ing data pro­tec­tion and cyber­se­cur­ity stand­ards that are essen­tial for main­tain­ing user con­fid­ence. Pub­lic con­sulta­tions have been con­duc­ted, par­tic­u­larly with banks⁶, to ensure an inclus­ive approach⁷.

A major chal­lenge is man­aging the risk of dis­in­ter­me­di­ation, i.e. the pos­sib­il­ity that CBDCs could bypass tra­di­tion­al banks. To address this, the ECB is con­sid­er­ing cap­ping indi­vidu­al hold­ings of digit­al euros at around €3,000⁸. This meas­ure aims to pre­serve the role of banks in fin­an­cing the eco­nomy, while offer­ing a secure and effi­cient digit­al altern­at­ive. Fur­ther­more, it is worth remem­ber­ing that it is lend­ing that cre­ates depos­its, not the oth­er way around.

For Juli­en Prat, this meas­ure guar­an­tees a cer­tain bal­ance: “With a depos­it lim­it set at €3,000, the impact will remain min­im­al.” He states that “banks will retain most of their depos­its and there­fore their lend­ing capa­city. The risk for them will there­fore be contained.”

Jéza­bel Coup­pey-Soubeyran, on the oth­er hand, con­siders this approach restrict­ive: “This is unfor­tu­nate, because a digit­al euro without lim­its could re-estab­lish the role of money as a genu­ine pub­lic ser­vice. As for the sta­bil­ity of bank depos­its, it is import­ant for liquid­ity, but it is wrong to assume that a decline in depos­its will lead to a decline in lend­ing. In fact, it is lend­ing that cre­ates depos­its, not the oth­er way around.”

Trans­ac­tion secur­ity is a key pri­or­ity. The digit­al euro prom­ises faster and cheap­er pay­ments, par­tic­u­larly for cross-bor­der trans­ac­tions. To ensure the integ­rity and con­fid­en­ti­al­ity of pay­ments, the ECB is explor­ing and con­sid­er­ing the adop­tion of advanced tech­no­lo­gies, such as cryp­to­graphy⁹.

While this elec­tron­ic cur­rency appears to be a stra­tegic tool for mon­et­ary sov­er­eignty, get­ting the pub­lic on board remains a major challenge

Sev­er­al European coun­tries are con­duct­ing exper­i­ments and pilot pro­jects to assess the integ­ra­tion of CBDCs into their exist­ing fin­an­cial infra­struc­tures. These ini­ti­at­ives are help­ing to identi­fy tech­nic­al and oper­a­tion­al chal­lenges, while gath­er­ing valu­able data to refine the digit­al euro model.

In France, the Banque de France is assess­ing the use of this form of digit­al cur­rency in spe­cif­ic mar­ket scen­ari­os. Tests on the set­tle­ment of token­ised secur­it­ies are explor­ing the applic­a­tions of this innov­a­tion to mod­ern­ise fin­an­cial infra­struc­tures¹⁰. At the same time, col­lab­or­a­tions with the private sec­tor are examin­ing the feas­ib­il­ity of block­chain for inter­b­ank set­tle­ments, anti­cip­at­ing changes in the sec­tor¹¹.

In Sweden, the Riks­bank, through the e‑krona pro­ject, is study­ing the integ­ra­tion of a CBDC into the nation­al pay­ment sys­tem. Tests are eval­u­at­ing its coex­ist­ence with cur­rent sys­tems and its abil­ity to meet user needs in a digit­al­ised envir­on­ment¹².

At the European level, the ECB is test­ing the use of this form of cur­rency to settle trans­ac­tions on token­ised assets. The aim is to improve inter­op­er­ab­il­ity between TARGET ser­vices and DLT plat­forms, facil­it­at­ing the integ­ra­tion of fin­an­cial mar­kets and cross-bor­der trade¹³.

The intro­duc­tion of a digit­al euro for the gen­er­al pub­lic (retail) is part of a strategy to reduce Europe’s depend­ence on pay­ment infra­struc­tures dom­in­ated by for­eign play­ers such as Visa and Mas­ter­card. Philip Lane, Chief Eco­nom­ist at the ECB, has emphas­ised that this depend­ence could lim­it Europe’s room for man­oeuvre in the event of geo­pol­it­ic­al ten­sions, mak­ing a domest­ic altern­at­ive neces­sary¹⁴.

Giv­en this real­ity, the digit­al euro could the­or­et­ic­ally act as a bul­wark against the influ­ence of non-European pay­ment sys­tems. By offer­ing a pub­lic means of pay­ment access­ible to all, it would strengthen the resi­li­ence of the European fin­an­cial sys­tem by redu­cing depend­ence on for­eign infra­struc­ture. At the same time, the emer­gence of new ini­ti­at­ives, such as the digit­al dol­lar backed by the Fed­er­al Reserve or stable­coins issued by digit­al giants, is height­en­ing the need for Europe to assert its mon­et­ary autonomy. The ECB sees these devel­op­ments as a poten­tial threat to the eco­nom­ic sta­bil­ity of the euro­zone¹⁵. How­ever, Jéza­bel Coup­pey-Soubeyran tem­pers this view: “The digit­al euro, as it is cur­rently envis­aged, will not dir­ectly strengthen the inter­na­tion­al role of the euro, as it is inten­ded for euro­zone cit­izens and banks for euro pay­ments with­in the euro­zone.” In her view, “in order to increase the euro’s inter­na­tion­al influ­ence, Europe should instead make pro­gress on fisc­al uni­on, which would lead to the emer­gence of a Euro­bond that would be in demand from European and inter­na­tion­al investors.”

Nev­er­the­less, while this elec­tron­ic cur­rency appears to be a stra­tegic tool for mon­et­ary sov­er­eignty, get­ting the pub­lic on board remains a major chal­lenge. A sur­vey con­duc­ted by the ECB in 2024 revealed that the major­ity of European cit­izens do not see the point of using it for their every­day trans­ac­tions¹⁶. Juli­en Prat raises a key ques­tion in this regard: “Is there a real demand for a digit­al euro?” After all, “cur­rent pay­ment meth­ods work well, and con­sumers are not express­ing any urgent need for this new tool.”

Aicha Fall