European Parliament committee backs digital euro to break US payment dominance

The European Parliament's Committee on Economic and Monetary Affairs voted on Tuesday to advance the digital euro legislation, clearing the way for a full plenary vote and subsequent negotiations with member states. The vote, which took place on 23 June, was described by committee chair Aurore Lalucq as a historic day for Europe. What was once framed primarily as a monetary policy response to the rise of dollar-backed stablecoins has been recast by lawmakers across the political spectrum as a geopolitical imperative.

A rare consensus across party lines

The committee's backing brought together the centre-left Socialists and Democrats and the centre-right European People's Party in unusually direct language. Markus Ferber, the EPP's economy spokesperson, argued that Europe can no longer accept a situation where digital payments are largely dependent on the goodwill of a few foreign providers. Lalucq, a French MEP who has chaired the committee since 2024, echoed the sentiment, saying that strengthening the resilience of payments in Europe has become a geopolitical necessity. The convergence reflects a broader shift in Brussels since Russia's full-scale invasion of Ukraine in 2022, when the vulnerability of European financial infrastructure to external pressure moved from theoretical concern to lived experience.

The legislation now moves to a vote by the full Parliament, likely before the summer recess. If approved, trilogue negotiations with the Council of the European Union and the Commission can begin. Valdis Dombrovskis, the EU's economy commissioner, told an event in Brussels on Monday that he hopes the legislative process can be finalised this year. That timeline is ambitious given the file's history, but it signals the Commission's determination to deliver a flagship digital sovereignty project before the current institutional cycle ends in 2029.

The scale of US payment dominance

The numbers underpinning the political urgency are stark. Visa and Mastercard together process nearly two-thirds of all card payments in the eurozone, according to figures cited repeatedly during the committee debate. When e-commerce, person-to-person transfers and digital wallet transactions are added, the share of European digital payments touching US-owned infrastructure rises further. The European Central Bank's own 2022 study on the payment attitudes of consumers in the euro area (SPACE) found that cards accounted for 46% of point-of-sale transactions by volume, with contactless cards alone at 38%. The vast majority of those cards run on Visa or Mastercard rails.

This dependence extends beyond the card networks. The dominant mobile payment platforms, Apple Pay and Google Pay, are American. The most widely used person-to-person payment applications in Europe, such as PayPal, are US-owned. Even many European fintech successes ultimately settle through US correspondent banks or card schemes. The result is a payments ecosystem where European consumers, merchants and banks have limited alternatives if a foreign provider raises fees, changes terms, or is compelled by its home jurisdiction to restrict service.

From stablecoin response to sovereignty project

The digital euro's origins lie in a more conventional central banking concern. When the ECB first floated the concept in October 2021, the immediate trigger was the proliferation of dollar-denominated stablecoins, crypto assets pegged to the US dollar that threatened to disintermediate commercial banks and undermine monetary policy transmission. The ECB's 2021 report on a digital euro noted that stablecoins could 'pose risks to financial stability and monetary sovereignty' if they achieved widespread adoption as a means of payment. The initial framing was defensive: a central bank digital currency would preserve the anchor role of public money in a digital economy.

The Commission's legislative proposal, published in June 2023, went further. It mandated that the digital euro be accepted by all merchants in the eurozone that accept digital payments, with limited exceptions for micro-enterprises. It required banks and other payment service providers to distribute the digital euro. And it specified both online and offline functionality, the latter allowing peer-to-peer transfers without internet connectivity, a feature explicitly designed to replicate cash's privacy and resilience characteristics. The proposal also capped individual holdings, initially at €3,000, to prevent large-scale deposit flight from commercial banks during periods of stress.

Germany's persistent scepticism

Nowhere has the digital euro faced more sustained political resistance than in Germany. The Bundesbank and the finance ministry have repeatedly questioned the necessity of a retail central bank digital currency, arguing that existing instant payment systems such as SEPA Instant Credit Transfer already meet most of the stated objectives. But the deeper opposition is cultural. Germany remains a cash-intensive economy: the ECB's SPACE survey found that cash still accounted for 59% of point-of-sale transactions by volume in Germany in 2022, compared with a eurozone average of 59%, a figure that masks wide national variation, with the Netherlands at 21% and Finland at 19%.

This attachment to cash has fuelled a narrative, amplified by the AfD and parts of the FDP, that the digital euro is a Trojan horse for cash abolition and state surveillance. The claim persists despite repeated denials from the ECB. Christine Lagarde, speaking at the same Brussels event as Dombrovskis on Monday, again rejected the assertion that the digital euro would enable government monitoring of individual spending or lead to the phasing out of banknotes and coins. The ECB's governing council has formally committed to ensuring that cash remains widely available and accepted. The legislative text includes a provision that the digital euro must not replace cash, and the Commission has proposed a separate legal tender directive to guarantee cash acceptance.

The privacy architecture

The technical design of the digital euro attempts to address privacy concerns directly. The offline mode, which allows transactions between two devices without connecting to the internet or the central ledger, is the most significant privacy feature. In this mode, neither the ECB nor any intermediary sees the transaction details, only the two parties involved. The online mode, by contrast, operates more like a conventional account-based system, with the user's payment service provider processing the transaction and the ECB settling it. The ECB has stated that it would not have access to personal data in the online mode either, as pseudonymised identifiers would be used. However, payment service providers would still be subject to anti-money laundering and counter-terrorism financing obligations, meaning they must know their customers and report suspicious activity.

This distinction has not satisfied all critics. The European Data Protection Board and the European Data Protection Supervisor issued a joint opinion in 2023 warning that the offline mode's privacy guarantees depend on the security of the hardware and the absence of backdoors, while the online mode still creates a data trail at the intermediary level. They recommended that the legislation explicitly prohibit the use of digital euro transaction data for commercial purposes and limit law enforcement access to what is strictly necessary and proportionate. The Parliament's committee report incorporates some of these recommendations, but the final text will depend on the trilogue negotiations.

Commercial banks and the distribution mandate

Another fault line runs through the European banking sector. The Commission's proposal requires all banks operating in the eurozone to offer basic digital euro services to their customers free of charge. The European Banking Federation and national associations have lobbied against this mandate, arguing that it forces them to distribute a competing product without compensation and could accelerate deposit disintermediation. The ECB's holding limit, initially €3,000 per person, adjustable by the governing council, is intended to mitigate this risk, but banks contend that even a modest shift of deposits into digital euro wallets would increase their funding costs and reduce lending capacity.

The committee's position modifies the mandate somewhat. It allows for a transition period during which smaller banks can apply for an exemption, and it introduces a compensation mechanism for distribution costs that would be negotiated between the ECB and the banking industry. Whether this satisfies the sector remains to be seen. The ECB itself has been cautious about the distribution mandate, with executive board member Piero Cipollone noting in a 2024 speech that the central bank does not want to become a retail payment provider and that the digital euro's success depends on the existing payment industry embracing it.

International dimensions and the dollar's reach

The geopolitical framing is not purely rhetorical. The US Treasury and Federal Reserve have been studying a digital dollar for years but have moved more slowly, with Chair Jerome Powell stating in 2023 that the Fed would not issue a retail CBDC without clear congressional authorisation. Meanwhile, China's digital yuan (e-CNY) has been piloted in multiple cities and used for cross-border settlements via the mBridge project with the Bank for International Settlements. The eurozone risks being squeezed between a dollar system that remains dominant and a yuan system that is expanding its reach in trade finance.

A digital euro could, in theory, facilitate euro-denominated cross-border payments that currently rely on correspondent banking relationships ultimately anchored in New York. The ECB has participated in Project Stella with the Bank of Japan and Project Mariana with the BIS Innovation Hub, Singapore and Switzerland, exploring wholesale CBDC interoperability for foreign exchange settlement. A retail digital euro would be a separate track, but the infrastructure choices made now, particularly around offline capability and programmability, could affect future interoperability. The legislation requires the ECB to ensure that the digital euro can be used for cross-border payments within the eurozone from day one, and to assess the feasibility of extending this to non-euro EU members and third countries.

What the legislation actually requires

The Committee's approved text, which will form the Parliament's negotiating position, contains several critical provisions. Merchants in the eurozone that accept digital payments must accept the digital euro, with an exemption for micro-enterprises defined as having fewer than ten employees and an annual turnover below €2 million. Public entities must accept it for taxes, fines and other charges. Banks and other payment service providers must offer basic digital euro services, account opening, funding, defunding, payments, free of charge to natural persons. The ECB sets the rules for the scheme, including the holding limit, but the Commission can object if the limit threatens financial stability. The digital euro must be available both online and offline from launch. And the ECB must publish an annual report on the digital euro's impact on financial stability, monetary policy transmission and the payment market.

Notably, the legislation does not compel the ECB to issue the digital euro. It establishes the legal framework that would allow issuance. The governing council will make a separate decision on whether and when to proceed, based on its assessment of the preparation work, the state of the payment market and the international environment. This distinction matters: the ECB has repeatedly emphasised that the digital euro is a project, not a commitment. The preparation phase, which began in November 2023 and runs until late 2025, is explicitly designed to allow a go/no-go decision.