In October 2020, the European Central Bank (ECB) published a report that marked a turning point in European monetary policy: the official launch of the Digital Euro project. With that document, the ECB outlined the strategic framework for what may become one of the most transformative innovations in the financial landscape of the coming years.
In an increasingly digital and interconnected world, central banks are beginning to explore the issuance of so-called CBDCs – Central Bank Digital Currencies. In Europe, this takes the form of the Digital Euro.
But what’s really driving the ECB to fix something that isn't broken? In other words, to modify a payment system that, at least on the surface, already functions efficiently? One that’s populated by well-established players – from traditional banks to fintech giants? For decision makers in the economic and financial spheres, it's essential to understand that the Digital Euro is not just about monetary technology. It is a strategic lever that could redefine the balance of power in the European economic system.
Europe’s payment landscape is visibly fragmented, with each member state following its own habits and dynamics. While international networks like Visa and Mastercard dominate electronic transactions, national systems struggle to keep pace. This dependence on non-European actors creates systemic vulnerabilities: The lack of a unified infrastructure limits both the efficiency and resilience of the single market.
Payment habits also vary significantly across European citizens. In the Netherlands, electronic payments are dominant: Only 22% of transactions are made in cash (17% by value). A similar situation exists in Finland, where cash accounts for 27% of operations (28% by value), with electronic payments covering 75% and 67% of transactions, respectively. The picture is reversed in Austria and Malta, where cash is still king, representing 62% and 67% of transactions. Italy is close behind, with 61% of payments made in cash, followed by Germany at 53%.
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Fonte: ECB, SPACE 2024
Another significant trend emerges when looking at how payment methods have evolved over time. In 2016, cash represented 79% of transactions in the Eurozone by volume. By 2024, this figure had dropped to 52%.
/ Although payment practices still vary across countries, the overall direction is clear: Cash is steadily losing ground.
Several factors contribute to this shift. Specifically, cash is increasingly seen as inconvenient, concerns over its safety are growing, and digital payment systems are becoming more widespread and user-friendly. Overall, consumer habits are clearly leaning toward cards (and more recently, wearables such as smartwatches) which enable faster, seamless payments integrated into daily life.
Today, every time a European citizen uses a digital payment method, they are (often unknowingly) taking two important steps:
In this often-overlooked context, cash remains the only form of public money that’s still available to European citizens. It’s a direct liability of the ECB, not of commercial banks. Despite often being stigmatized as a tool for the shadow economy, cash remains the only payment method fully guaranteed by the ECB.
So, what’s the risk for Europe?
Piero Cipollone, ECB Executive Board Member, made it clear during a hearing before the European Parliament’s Committee on Economic and Monetary Affairs on April 8, 2025. In his words:
“Consumers are increasingly choosing to use digital payment methods in stores and for online purchases. But for many of these transactions, we rely on non-European providers. Today, citizens in 13 Euro-area countries depend solely on international card schemes or electronic payment solutions for retail purchases. Any existing national card scheme also relies on co-branding with international networks to enable cross-border transactions within the Eurozone. Soon, this situation could lead to dependency on foreign private payment systems.””
In short, Europe risks losing direct control over its own currency if citizens continue to rely solely on non-European digital tools. This would mean both technological and financial dependence, with far-reaching implications for the Union’s monetary sovereignty.
The Digital Euro aims to fill this strategic gap. It’s designed as a free, public digital currency, accessible to all citizens and businesses in the euro area. The goal is to combine the security and privacy of cash with the convenience of electronic payments.
Access will be through a digital wallet developed by the ECB but offered by Payment Service Providers (PSPs, e.g., banks), which will act as intermediaries between users and the central bank. The ECB will provide a basic version of the app, which PSPs can customize with additional features (potentially as premium services).
Payment will be possible in two modes:
Each wallet can hold around €3,000 in Digital Euro (the final cap is still under discussion), which can be topped up via cash, wire transfers, or other banking instruments. To access the service, users must complete identification in line with KYC (Know Your Customer) regulations. Transaction data for online payments will only be accessible to the PSP managing the app, while the ECB may view anonymized data solely for fund transfer purposes, fully respecting user privacy.
This holding cap is intended to preserve financial system stability and avoid disintermediation. But if citizens were to transfer their savings en masse from deposit accounts to the Digital Euro (which is a direct liability of the ECB), commercial banks could face a dramatic drop in deposits, triggering a credit crunch. That’s why the Digital Euro is designed for day-to-day transactions, not large-scale or professional use. A well-calibrated tool, not a disruption to the current European banking system.
The following diagram illustrates how the system works. The ECB provides core services to PSPs, which distribute the Digital Euro to users (both payers and recipients) under a Rulebook agreement.
The Digital Euro is not just a technological experiment in the testing phase. It is a strategic instrument for Europe’s monetary sovereignty. ECB President Christine Lagarde has repeatedly emphasized the geopolitical importance of the project, pointing out that the preparatory phase is scheduled to conclude by October 2025. On several occasions, Lagarde has stated that the Digital Euro is now “more necessary than ever” to strengthen the Union’s strategic autonomy.
But the real question is:
This reflection is the starting point for a research project launched by SDA Bocconi in January 2025, in response to a call for proposals from the ECB. The authors of this article are part of the team tasked with critically assessing the Digital Euro – evaluating its design, identifying potential issues, and proposing alternative solutions. The next milestone is set for May 21 in Frankfurt, where these topics will be discussed directly between SDA Bocconi and the ECB.
Stay tuned.
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