The Digital Euro: What Is It and How It Works

Our way of paying has changed a lot: contactless payments, instant transfers, the explosion of crypto assets, etc. We can thus say that our relationship with money has profoundly evolved in recent years.

In this context, central banks are accelerating their work on central bank digital currencies, or CBDCs. In Europe, the European Central Bank (ECB) is working on an ambitious project: the digital euro.

Beyond the concept, its implications could be major: new uses, evolution of the role of banks, competition with stablecoins, or even the emergence of a form of “smart money” capable of automating certain financial flows.

In this article, we invite you to understand what the digital euro is, how it differs from stablecoins, but also the opportunities and risks it could pose for the French, investors, and the economy in general.

What is a central bank digital currency (CBDC)?

A central bank digital currency, or CBDC (Central Bank Digital Currency), is a fully digital version of the money we use every day.

Today, when you make a payment by card or a transfer, you are actually using bank money, i.e. money created and managed by commercial banks. A CBDC, on the other hand, would be issued directly by the central bank, like banknotes and coins.

In other words, it would be a “digital euro,” a “digital yuan,” or a “digital rupee,” having the same value and status as fiat money, but in an entirely digital form. The challenge is therefore to adapt the money that already exists to increasingly digital uses.

For central banks, the benefits of digital currencies are multiple:

• Support the gradual decline in the use of cash
• Make payments faster and potentially cheaper
• Modernize payment infrastructures
• Preserve the role of central banks in the face of the rise of private actors
• Respond to the rise of crypto currencies and stablecoins

Table of main central bank digital currencies (CBDCs)

What is the digital euro?

Behind the term “digital euro” lies a surprisingly simple idea: to offer a digital version of the euro you already use today.

Today, when you pay by card or via an app, you are using bank money. With the digital euro, you could pay directly in money issued by the European Central Bank, as if you were using cash but in a digital format.

The objective is thus less to revolutionize money than to adapt it to our increasingly digital uses. concretely, this could manifest as a digital wallet, accessible via an application, allowing you to pay, send, or receive money in a simple and instant manner.

In short, the digital euro can be summarized as:

• a “digital cash,” usable throughout the euro area
• a public currency, guaranteed by the central bank
• a payment method complementary to cards and transfers
• a response to the rise of crypto currencies and private solutions

In other words, the digital euro aims to bring official money into a new era, without overturning its fundamentals.

Today, whenever you perform a digital payment, you necessarily go through a bank: card payments, transfers, or mobile apps all rely on private intermediaries.

It is currently impossible to use digital money without holding a bank account, which gives commercial banks a central (and powerful) role in managing our money. One of the objectives of the digital euro is precisely to offer an alternative, by allowing the use of a form of digital money directly issued by the central bank, without being entirely dependent on these intermediaries.

How does the digital euro work?

On paper, the operation of the digital euro may seem close to what you already know: a digital wallet, accessible on a smartphone, that allows sending or receiving money in a few seconds. But it is really at the technological level that the project becomes interesting.

One of the major innovations envisaged concerns the possibility of making payments even without an internet connection. Concretely, two users could exchange digital euros directly via their phones, a bit like exchanging cash but in a digital form. This is a key point, because it brings the digital euro closer to the functioning of cash, while staying within a digital environment. This mode of operation thus brings it closer to cash than to crypto currencies, which typically require an internet connection to validate transactions.

Another avenue, still debated but frequently mentioned: a programmable currency. The idea would be to be able to attach rules to certain money flows. For example:

• an aid for school supplies usable only for those purchases
• certain social benefits limited to specific expenditures
• funds conditioned to use within a specific framework (geographical area, type of business, etc.)

Even if these uses are still under consideration today and are not part of the core project carried by the European Central Bank (ECB), it remains technically possible with this innovation and clearly illustrates the transformative potential of money. In the long run, the digital euro could become not just a means of payment but a tool capable of integrating rules and automating certain uses.

Concrete use cases for the digital euro?

Beyond mere payments, the digital euro could mainly evolve the way money circulates. One of the most frequently cited benefits concerns the traceability of flows. Without aiming for full transparency for individuals, the idea would be to better track certain payments, notably in a professional or public context. This could strengthen the fight against money laundering, tax fraud, or certain illicit trades, where cash remains difficult to trace today.

Another important evolution: the reduction of intermediaries. By enabling more direct payments, the digital euro could limit some fees related to cards or payment networks, especially for merchants.

On the use side for the digital euro, several avenues are taking shape:

• automated fractional payments, for example for a subscription or a purchase spread over time, without going through a credit institution
• payments triggered automatically in certain contexts (tolls, transport, usage-based services)
• instant peer-to-peer transactions, including offline in some cases
• more precise management of public or professional expenses, with better tracking of flows

All these use cases are not yet decided, but they illustrate a possible evolution: moving from a simple payment tool to a money capable of integrating more directly into everyday economic uses.

Digital euro vs stablecoins: what are the differences?

At first glance, the digital euro and stablecoins may seem close since both are digital assets whose value is typically linked to a currency like the euro. But the comparison stops there. The main difference lies in their very nature: the digital euro would be issued by the European Central Bank, while a stablecoin is created by a private company.

In other words, on one side a public currency, on the other a private asset whose solidity depends on the issuer’s management.

Additionally, stablecoins are most often built on public blockchains, whereas the digital euro could rely on technology controlled by the central bank, not necessarily using an open blockchain.

But the real rupture is legal. The digital euro would be a currency having legal tender in the euro area, meaning it could be accepted everywhere, like cash. By contrast, stablecoins are not mandatory means of payment. Their use depends on merchants’ willingness and is regulated.

In short, where stablecoins are private, innovative but optional solutions, the digital euro would be fully integrated within the official monetary system, with a much broader status and scope.

What are the advantages and disadvantages of a digital euro?

Like any major evolution in our relationship with money, the digital euro generates both interest and concerns. Some see it as a logical step forward, others fear its implications, notably in terms of control or privacy. Without succumbing to paranoia, it is nevertheless essential to keep a clear view because like any innovation, the digital euro presents both advantages and drawbacks that deserve analysis.

What are the advantages of the digital euro?

• A public and secure form of payment: a money guaranteed by the European Central Bank, with no risk of failure by a private intermediary
• Faster payments and potentially lower costs: notably thanks to the reduction of intermediaries
• Better financial inclusion: access to a form of digital money without necessarily going through a traditional bank
• A lever against fraud and money laundering: thanks to potentially enhanced traceability of flows

What are the disadvantages of the digital euro?

• Privacy concerns: fear of increased transaction surveillance
• Potential impact on commercial banks: risk of deposits moving to the central bank
• Uncertain acceptability: adoption by the general public and merchants not guaranteed
• Risk of misuse or excessive control: especially if certain forms of “programmability” of the money were to be implemented

When will the digital euro be implemented?

Contrary to what one might think, the digital euro is not ready to be launched immediately. The project is progressing, but according to a fairly gradual schedule steered by the European Central Bank (ECB) and the Eurosystem as a whole (including the Bank of France).

Today, several key milestones for the launch of the digital euro are already known:

• 2026 : adoption (or not) of the European legal framework, essential step before any launch
• Mid-2027 : launch of a pilot phase, with initial real-world tests among certain users and financial actors
• 2027–2028 : experimentation and adjustment phase of the system
• From 2029 : possible gradual circulation of the digital euro in the euro area

Important note: there will be no launch in a single country first. The digital euro is a European project, to be deployed simultaneously across the entire euro area, even if some actors or countries could be involved earlier in the testing phases.

Finally, one must keep in mind that nothing is yet fully decided since the final decision will depend on the vote of the European institutions and political choices. In other words, the schedule is relatively clear but remains conditioned by several validations.

How to use the digital euro in practice?

In practice, the digital euro should naturally fit into our habits quite easily. The aim is not to overturn the way we pay, but to propose an additional, familiar alternative. Concretely, it would be accessible via a digital wallet (wallet), offered either by your bank or by a public actor, and usable from a mobile application.

But not everything will necessarily go through a smartphone. To ensure universal access, especially for people less comfortable with digital tools, dedicated cards or other physical supports could be offered, functioning similarly to a traditional bank card.

On a daily basis, you could therefore:

• pay in-store contactlessly (smartphone or card)
• send money instantly to a relative
• settle online purchases
• make certain payments even without an internet connection

The objective of the digital euro is to offer a simple and seamless experience, with no disruption to current practices, while providing more flexibility and accessibility.

All of our information is, by nature, generic. It does not take into account your personal situation and does not constitute any personalized investment advice, nor any encouragement to buy or sell financial instruments. The reader is solely responsible for using the information provided, and Cafedelabourse.com cannot be held liable. The publisher’s liability cannot be engaged in case of error, omission or ill-advised investment.