European Commission Proposes Legal Framework to Establish Digital Euro

The European Commission ("EC") issued two legislative proposals aimed at (i) ensuring citizens and businesses can continue use of euro banknotes and coins and (ii) establishing a legal framework for a possible "digital form of the euro that the European Central Bank may issue in the future, as a complement to cash."

The EC stated that the measures were aimed at providing people with both physical and digital euro payment options when settling transactions with central bank money. The EC said the proposal would ensure the "effective use of the digital euro as a single currency throughout the euro area," consistent with existing policy provisions regarding: (i) data protection laws, (ii) accessibility for individuals with disabilities or functional limitations, (iii) financial inclusion and (iv) anti-money laundering. The EC would extend the definitions of funds to include central bank digital currency as a form of central bank money issued for retail use, in addition to banknotes and coins. The proposal would also extend the interoperable European Digital Identity Wallet to users of the digital euro.

In addition, the EC issued a separate but related proposal to establish a framework for digital euro service providers that are incorporated in Member States whose currency is not the euro.

According to the EC, the absence of a widely available central bank money technology could "diminish trust towards commercial bank money, and ultimately towards the euro itself." The EC said that without a relationship to the central bank, money that can be used in a digital economy threatens financial stability in the European Union as well as its monetary sovereignty.