Column by Governor Boris Vujčić in magazine Business Outlook/Jutarnji list, dated 12 December 2024.

A saying by a 19th century French priest and scientist Pierre Teilhard de Chardin that the future belonged to those who gave the next generation reason for hope, rings more than true today as well. Whichever way we look at it, from current political and military situation in the world, climate change to a sudden widespread use of artificial intelligence, to name just a few of the modern challenges, we are all, not just the young, looking for a stronghold that could give us hope for the future. The financial world is no exception; aside from wanting to have sufficient money, everyone also wants to be able to use it without obstacles, disruptions and delays. We also want to be able to make payments in a manner that is practical, fast and reliable, trusting that the information we share digitally are afforded maximum protection as our own personal data.

And that is why the project of the digital euro, undertaken by the Eurosystem, which consists of the European Central Bank (ECB) and the national central banks of euro area member countries is a particularly important step towards a better financial future. The digital euro comes as a response to the ever growing demand for safe and reliable electronic payments in Europe. As Piero Cipollone, Chair of the Eurosystem High-Level Task Force on the Digital Euro, pointed out, 25 years ago citizens recognized the importance of the euro as a common currency, and while the euro connected Europe, the system of digital payments remained fragmented and depended on several dominant non-European service providers. Today we do not have a universal European digital payment solution for payments in euro that would meet the needs of modern consumers across Europe under the same terms. Whether we use cards or electronic banknotes in our mobile phones to make payments, the euro travels through payment networks of large tech companies with head offices outside Europe. This makes us vulnerable to restrictions in the availability of these services and gives us lower negotiating power. So, 25 years after the establishment of the common currency, it became clear that we need to set up a shared, European digital payment network. Some might term our efforts as strategic autonomy but we will call it the digital euro.

However, the mere mention of the digital euro, in different situations, raises a range of questions and fuels mistrust on some part of the public. Those most vocal and less informed will see the digital euro as a non-democratic project that aims to set up an Orwellian “Big Brother” with the main objective of citizen surveillance. At the time characterised by deep distrust in institutions, such a qualification of this project will, sadly, meet with the interest and support of a part of the public. However, the rationale for launching the digital euro is so strong and reasonable that we do not have any doubt whatsoever as to its justification, and we are certain that the citizens of the euro area and the European Union and most of their democratically elected representatives will ultimately recognize this. The project is an extensive endeavour undertaken by political institutions of the European Union and the Eurosystem representing almost half a billion citizens of the European Union. In June 2023, the European Commission, as one of the institutions of the European Union, presented a draft legislative proposal for the digital euro, which was later adopted after final text adjustments by two European Union institutions, the Council of the European Union and the European Parliament as the representative body of all EU citizens.

The digital euro, a digital form of cash of the Eurosystem will bring a very practical solution to many challenges. As a digital version of cash, it would be available to all in the euro area through an application, card or some other appropriate medium. Its use would be free of charge for consumers. Using new technological solutions it will guarantee the highest level of privacy, reliability and security. Privacy will particularly be safeguarded in an offline mode where no one except the payer and the payee will be able to know the identity of the parties in the transaction. Thus the digital euro application can be used when there is no internet, such as in remote locations or in cases of temporary network congestion or similar situations, by physically holding payment devices against each other.

Although the digital euro will share most of the key characteristics of cash, it is not intended as its replacement but its digital variant. Cash remains an equally important means of payment and it will, when voted by the selected representatives of the citizens in the European Parliament, be declared and protected as a legal tender widely accessible to all and universally acceptable. For retailers, especially small entrepreneurs, the digital euro would generate significant savings and increase stability of operations; there is a plan to limit the fees for businesses accepting the digital euro as a means of payment and reduce inequality in the cost of the service and thus boost profitability.

What is next?

The project of the digital euro is currently in the preparation phase that includes the development of technical infrastructure, a legislative framework and a research into user preferences. Until end-2025, the ECB will decide on moving to the next phase but the final introduction will depend on the outcome of the democratic process in the European Parliament.

Sometimes there are downsides to technological advancement and digital innovation but that should not stop us from employing digital innovation to the benefit of all of us. This initiative is not only a technological leap forward, it is also a symbol of European sovereignty and innovation. The digital euro may lay the groundwork for a more resilient, secure, inclusive and competitive financial system for our and the future generations.

The column is available at the website of Jutarnji list.