"The real value of the digital euro lies behind the scenes"

The digital euro is getting closer. The European Parliament recently gave the green light for further negotiations, and the European Central Bank (ECB) is aiming for introduction in 2029. But why do we actually need a digital euro if payments already work smoothly today? We called Koen Ottenheijm, Senior Treasury & Trading Development at APG.

The digital euro is on its way. What problem are Europe and the ECB actually trying to solve?
“The digital euro, a form of Central Bank Digital Currency (CBDC), is not a response to a single acute payment problem. Originally, there were several reasons to explore a CBDC. In some countries, the focus is on financial inclusion: how can people without proper access to banks still gain access to safe digital money? Other countries are looking at the decline in cash use and its consequences, or at how payments can continue when telecom or payment networks are disrupted. Europe has added another motive: strategic autonomy. A large share of our digital payments runs through international card networks and technology platforms. The digital euro is intended to ensure that, alongside commercial solutions, a European public payment infrastructure remains available.

With CBDCs, a distinction is often made between two variants. The first is a retail variant, intended for consumers and businesses. This is the variant at the centre of the debate on the digital euro. In addition, central banks are also examining a wholesale variant for financial institutions. This could be used to settle securities and foreign-exchange transactions, directly affecting the infrastructure of capital markets. That latter variant is therefore also relevant for parties such as APG.”

We can already pay digitally with our debit card or phone. Why is a digital euro more than a solution to a problem many people do not see?
“That is probably the most important question in the debate. The scepticism is understandable, because the Dutch payment system works extremely well. The difference is therefore not so much in the payment experience, but in the nature of the money. A bank balance is private money: legally speaking, a claim on a commercial bank. Cash is public money: a claim on the central bank. As cash use continues to decline, the question arises whether citizens will still have direct access to public money. The digital euro would make that public form of money available digitally as well. Its added value will ultimately depend on its design. The ECB is exploring applications for in-store payments, peer-to-peer payments, and online and offline transactions. Without a clear added value for users, it will be difficult to achieve broad adoption.

The discussion also goes beyond payments alone. Within the financial sector, attention is also being paid to tokenisation: making securities, bonds and other assets digitally tradable. The question of how digital money and digital financial assets relate to each other is becoming increasingly important in that context. From that perspective, the digital euro is also an investment in the future financial infrastructure.”

Suppose the digital euro is actually introduced. What would an ordinary Dutch citizen notice?
“For the average Dutch citizen, the digital euro is unlikely to feel like a monetary revolution. It will probably become an additional option alongside the bank account, debit card, credit card and cash; it will not replace those means of payment. The biggest change is therefore not in what users see, but in what happens behind the scenes. Think, for example, of the possibility of making certain payments when internet or communications networks are temporarily unavailable. A digital euro could also contribute to greater resilience in European payments.

Behind that development lies a broader strategic consideration. Many digital payments today depend on international parties and infrastructure outside Europe. Under normal circumstances, that is not a problem, but geopolitical tensions, sanctions and trade conflicts have shown that financial infrastructure also has a strategic dimension. Europe therefore wants to avoid becoming fully dependent on parties outside the euro area. Perhaps that is the most important lesson of the whole discussion. Ultimately, the debate about the digital euro is less about a new way to pay for a cup of coffee and more about the role public money should play in an economy that is becoming increasingly digital.”