The European Parliament’s economic affairs committee has approved draft rules for the proposed digital euro, clearing a key stage before a wider parliamentary vote expected in July. The measure is intended to create a central bank-backed digital wallet that eurozone residents could use for online, in-store and person-to-person payments, while preserving the role of banks and regulated payment firms in distribution.
The committee vote, passed by 43 votes to 14 with one abstention, comes after years of argument between EU institutions, the European Central Bank and commercial lenders over the scale and design of the project. Brussels wants the digital euro to function as a public alternative in a payments market where card networks and mobile wallets linked to US companies dominate cross-border transactions and much of the consumer payment infrastructure.
The proposal has gained urgency as policymakers reassess Europe’s financial exposure to foreign-controlled payment rails, cloud systems and dollar-backed digital assets. The return of trade tensions with Washington and the expansion of private stablecoins have sharpened the argument that the eurozone needs a sovereign digital payment option that can operate across the single market without relying entirely on commercial providers.
The digital euro would not replace cash. It would be issued by the Eurosystem as a digital form of central bank money, available through wallets operated by banks and authorised financial technology companies. Consumers would be able to use it without paying user fees, and the instrument would not earn interest, limiting its appeal as a savings vehicle.
Lawmakers have backed both online and offline functionality, a feature seen as crucial for resilience during internet outages, power disruptions or failures in private payment networks. Offline use is also central to the privacy debate because smaller-value transactions could be processed with less data exposure than standard card or mobile payments, though full anonymity is not part of the design.
The European Central Bank has argued that the project is necessary because cash usage is declining while digital payments are increasingly handled by private intermediaries. A digital euro would allow citizens to hold and spend public money in digital form, much as banknotes allow them to do in physical form.
Commercial banks have pushed back against the plan, warning that a large-scale public wallet could pull deposits out of the banking system and weaken their revenue from card payments and merchant services. The draft rules seek to address those concerns through holding limits, no interest payments and a distribution model that keeps banks at the centre of customer relationships.
Businesses would not be able to hold digital euros beyond a limited settlement period, expected to be no more than 24 hours, reducing the risk that companies use the system as a substitute for bank accounts. Consumer holding caps are expected to be calibrated later, with the European Commission and the central bank reviewing the limits as the system develops.
Cost remains one of the most contentious issues. Implementation expenses for banks have been estimated at €4 billion to €6 billion over four years, while the central bank’s own set-up costs are expected to be about €1.3 billion, with annual operating costs of roughly €300 million. Banks want clarity on compensation, merchant charges and the technical obligations they will face before committing fully to the rollout timetable.
Payment companies are watching the legislation closely because the digital euro could alter the economics of card and wallet transactions across the eurozone. While the project is not designed to ban Visa, Mastercard, Apple Pay or Google Pay, it would create a state-backed rival with legal tender status and potentially lower transaction costs for merchants.
The European Payments Initiative’s Wero wallet and domestic card systems such as France’s Cartes Bancaires show that parts of Europe already have alternatives to global networks. The digital euro, however, would be broader in scope, covering the full euro area and potentially providing a common settlement layer for payments that now rely on fragmented national systems or non-European infrastructure.
Follow Arabian Post
Select Arabian Post as your preferred source on Google and MSN News for trusted business news and Arab politics and updates.
