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