Digital euro and CBDCs. 6 chapters and a final quiz.

Chapter 1. The case for a central bank digital currency.

When you pay in cash, you use central bank money: a banknote is a direct claim on the ECB, with no intermediary risk. When you pay by card or credit transfer, you use commercial bank money: your deposit is a claim on your bank, which can fail. A CBDC (central bank digital currency) solves a simple equation by giving the public a digital form of the former. Cash, without the paper.

The project’s timing reflects the rapid decline of cash as a payment method. In the euro area, cash fell from 72% of point-of-sale transactions in 2019 to 52% in 2024 (ECB SPACE study). If this erosion continues, public money disappears from everyday life, and with it its role as an anchor. That anchor guarantees that a euro at BNP is worth a euro at ING, because each is convertible on demand into central bank money. The historical trigger dates back to June 2019, when Facebook’s Libra announcement confronted central banks with the prospect of a private global currency backed by a network of 2 billion users.

Chapter 2. The ECB’s design: intermediaries, holding limits, offline, privacy.

The digital euro’s design answers a seemingly contradictory constraint. It must give the public access to central bank money without disintermediating banks and without turning the ECB into a retail bank. The answer comes down to four choices: an intermediated model, holding limits, an offline mode, and a privacy-by-design architecture.

The intermediated model: the ECB settles, PSPs distribute

The ECB provides the settlement infrastructure and issues the money, but it never opens accounts for the public. Banks and PSPs distribute the digital euro: onboarding, KYC, wallets, apps, and customer support. Users will access the service through their bank’s app or through an app provided by the Eurosystem, always via a licensed intermediary.

Holding limits and the waterfall: containing deposit flight

Each individual will be able to hold only a capped amount of digital euros. The limit is meant to prevent savers from moving their deposits en masse into central bank money, especially during a banking crisis. The figure has not been set. Preparatory work floated €3,000, banks are lobbying for €500, and in 2025 the ECB published a methodology for setting the limit as close to launch as possible. Merchants and businesses will have a limit of zero: any digital euro they receive is immediately swept to their bank account (waterfall). In the other direction, the reverse waterfall allows a payment larger than the wallet balance by drawing automatically on the linked account. The limit becomes invisible in the payment experience.

Offline mode: cash on your phone

Planned from the first release, offline mode will allow payments with no network connection at all. Preloaded digital euros are stored locally in the phone’s secure element (or on a dedicated card), then transferred device to device over NFC. Settlement is local and final. Neither the PSP nor the ECB sees the transaction, whose details are known only to the payer and the payee, for privacy comparable to cash. Beyond privacy, the resilience argument has become tangible. During the massive power outage on the Iberian Peninsula on April 28, 2025, payment terminals went dark and only people holding banknotes could pay. Offline digital cash is the structural answer to that scenario.

Privacy: pseudonymization by architecture

Online, the Eurosystem will see only pseudonymized data that technically cannot be linked directly to a person. Customer due diligence stays with PSPs, which remain subject to the usual AML/CFT rules. The separation between identity data and payment data is built into the architecture and written into the proposed regulation. The ECB keeps stressing that the digital euro would offer a level of privacy higher than today’s private payment solutions, which monetize transaction data.

Chapter 3. Timeline and legal framework: where things stand.

The digital euro is moving forward on two tracks that don’t advance at the same pace. The ECB leads the technical work, while the legislative process plays out among the Commission, Parliament, and the Council. The ECB has always been clear: no issuance without an adopted regulation. Here is the full timeline, with the key milestones.

On the legislative side, the June 28, 2023 proposal is still under negotiation as of mid-2026. The Council made progress in late 2025 on two points: governance of the holding limit, where member states want a say rather than leaving it to the ECB, and the compensation model for market participants. Parliament moved more slowly: its ECON committee adopted its position on June 23, 2026 (43 votes to 14), confirmed in plenary on July 9, 2026 (416 votes to 169), opening trilogue talks aimed at a deal by the end of 2026. The most contested issue remains who sets the holding limit: a monetary prerogative for the ECB, a political choice with consequences for financial stability for the co-legislators.

Chapter 4. Controversies: bank deposits, costs, privacy.

Few ECB projects have drawn so much organized opposition, and it has come on three fronts. Banks fear for their deposits and their costs. Part of the political class and the public raises the specter of surveillance. And skeptics question its usefulness, pointing to overlap with existing solutions. Let’s examine each argument, along with the responses.

First front: deposit flight

Demand deposits are the raw material of bank lending. The Copenhagen Economics (2023) study, commissioned by European banking federations, puts potential outflows at up to €739 billion if every adult in the euro area converted €3,000 of deposits into digital euros. Bank funding would then become more expensive, and ultimately so would credit. The nightmare scenario is a digital bank run. If a rumor hit a bank, moving deposits into central bank money would no longer mean lining up at an ATM, just three seconds in an app. The ECB responds through design (holding limit, zero interest, waterfall) and notes that its own studies find the impact manageable with a well-calibrated limit.

Second front: privacy and the surveillance charge

“Monetary Big Brother,” “money with an expiry date,” “Chinese-style social control”: the project crystallizes fears that go well beyond its actual design. That design provides for pseudonymization, a near-anonymous offline mode, and an explicit ban on programmable money. But suspicion weighs on it structurally, fed by the idea that any technical capability ends up being used. Europe’s answer is legal (write the safeguards into the regulation, not into promises) and architectural (make surveillance technically impossible, not merely prohibited). The geopolitical contrast fuels the debate. The US banned any CBDC by executive order on January 23, 2025, followed by a House vote in summer 2025. Washington is betting everything on private dollar stablecoins, regulated under the GENIUS Act.

Chapter 5. Global overview: e-CNY, the Bahamas, mBridge, and others.

The global CBDC map shows a paradox: near-universal exploration, very few launches, and disappointing adoption everywhere. Three retail CBDCs are officially in circulation (the Bahamas, Jamaica, Nigeria), and some 50 pilots are under way, including China’s giant. Major Western economies are moving in different directions, when they haven’t reversed course altogether.

China’s case deserves a closer look. The e-CNY is by far the world’s largest pilot. In June 2024, the central bank reported 180 million personal wallets and CNY 7.3 trillion in cumulative transactions (≈ €930 billion). An international operations center opened in Shanghai in 2025. And yet the e-CNY remains a tiny fraction of Chinese payments, where Alipay and WeChat Pay, embedded in daily habits for 15 years, leave it almost nothing. Even the state best able to impose a payment method runs into the iron law of payments: you can’t shift payment habits without a clear benefit for the end user.

The other CBDC: wholesale, less publicized and further along

While retail CBDCs search for users, wholesale CBDCs (restricted to settlement between financial institutions) are advancing quickly. The mBridge project (China, Hong Kong, Thailand, and the UAE, joined by Saudi Arabia in 2024) settles cross-border payments in digital central bank currencies. The BIS withdrew in late 2024 and left the members to carry on, a sign of how geopolitically sensitive the project is. In July 2025, the Eurosystem launched a two-track initiative. Pontes connects TARGET to DLT platforms, with a pilot expected in late 2026, while Appia sets out a long-term vision for global wholesale settlement. Switzerland already settles digital bonds in central bank Swiss francs on SIX Digital Exchange (Project Helvetia). For market infrastructures, this quiet revolution is probably closer than the retail digital euro.

Chapter 6. Practical impact for PSPs and merchants.

Let’s leave macroeconomics behind. If the regulation is adopted and issuance is approved, the changes reach the point of sale and a PSP’s roadmap. There are many of them, and the proposed text makes some mandatory. The digital euro would have legal tender status. Merchants that already accept digital payment methods would be required to accept it, with exemptions (notably for microenterprises). On the distribution side, account-servicing banks would have to offer basic services to customers who request them.

For PSPs, the equation cuts both ways. The threat is a public rail with capped fees that cannibalizes part of card and credit transfer volumes, where the margins are. The opportunity is a new market: distributing the digital euro (wallets, onboarding, merchant acquiring, value-added services on top of the public rail). Inter-PSP compensation set out in the regulation will apply, modeled on the economics of acquiring. The winners will be the players that can pool their investments, and those that have already industrialized instant payments and Wero will have a technical head start.