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Digital Euro: Redefining our understanding of money

In an era where digital transactions are increasingly becoming the norm, the European economy stands at the forefront of this digital transformation. With a decline in cash usage and a rapid shift towards online shopping and digital payments, ensuring the security and future-proofing of European money and payment systems is of paramount importance. In response to these evolving trends, the European Central Bank (ECB) and the European Commission have embarked on the development and issuance of the Digital Euro currency, with the aim of finalising any decisions by 2025. This ground-breaking initiative aims to provide retailers and consumers with a secure, safe, and digitally-native form of currency. However, amidst this technological evolution, questions arise regarding the legal standing of the Digital Euro and its implications for the existing Euro currency framework.

The Euro currency is printed by Member States with the exclusive authorisation of the ECB, in accordance with article 128 of the Treaty on the Functioning of the European Union (TFEU). Importantly, the Euro is recognised as the sole legal tender across the Eurozone, in accordance with Article 10 of Regulation 974/98. Although the above term is not defined within the treaties, a definition may be derived from Commission Recommendation 2010/191, which provides for:

  • its mandatory acceptance in retail transactions;
  • its acceptance at full face value without any charges; and
  • its ability to be used to discharge debt.

This status of the Euro as the sole legal tender was tested with the onset of card transactions and cryptocurrencies, with the Court ruling that cryptocurrencies are not legal tender, while cards and cheques are recognised as parallel means of payment but not as legal tender. What is especially notable is the Hessischer Rundfunk case which decided the conditions under which cash payments in Euro notes may be limited and provided that the relevant Regulation, the Protocol on the ESCB & ECB, and the TFEU all prohibit any steps that may have the effect of abolishing banknotes by preventing, as a general rule, payments in Euro notes and coins. Additionally, the Proposal for a Regulation on the Legal Tender of Euro Banknotes and Coins, which is part of the Digital Euro Package, will seek to prevent the onset of a cash-less society by clarifying the status of cash as legal tender.

With the above in mind, one would wonder about the legal status of the Digital Euro, and whether a business or individual can expect it to have the same characteristics as the Euro. In accordance with Articles 7 to 11 of the Commission Proposal on the Establishment of the Digital Euro, “[t]he digital euro is granted legal tender status which entails inter alia its mandatory acceptance by payees”. It does go on however to list several exceptions to the requirement of acceptance, including for microenterprises and natural persons acting in the course of purely personal activity. Article 12 requires the convertibility of Digital Euro and the conventional Euro currency into each other at par. For the avoidance of doubt, Article 12 also gives the payer the right to choose to pay in Digital Euro or cash in those situations where mandatory acceptance of both applies.

Other characteristics of the Digital Euro include its free basic use by private individuals, in accordance with article 17, and the provision for completely untraceable offline payments of up to a specific amount (similar to cash payments), in accordance with articles 23, 30 and 37. Importantly, given the ability of the Digital Euro to circumvent financial institutions by being provided directly to the public by central banks, holdings of individuals will be subject to a limit, in accordance with article 15 of the proposed Regulation, to prevent excessive outflows from commercial bank deposits into digital euro.

As such, it becomes apparent that the legal framework through which the Digital Euro will be implemented enables individuals and businesses to safely deal in this new form of currency which is given legal tender status, even if it is not afforded the same legal standing as the Euro we have come to know and appreciate. Indeed, the current proposal meets, to some extent, all features of money as it serves as a medium of exchange, unit of account, and store of value.

At the same time, the proposed Regulation ensures that individuals are provided with the choice of using the existing Euro currency, thus making it compliant with the EU acquis and preventing potential breaches of human rights obligations including the rights to liberty, freedom to conduct business, and property, as well as the rights of the elderly and people with disabilities (articles 6, 16, 17, 25, and 26 of the Charter of Fundamental Rights of the European Union respectively). At the same time, the adoption of ‘privacy by design’ principles ensures that the new currency does not infringe on the human rights of users by monitoring their transactions or profiling them.

All in all, the introduction of the Digital Euro will unquestionably shake not just the state of financial markets, but the very way business is being done across the Union (both for individuals and companies). Thus, it is a legal development that must and will be followed closely by all EU practitioners and businesses. All eyes are now on the Rulebook Development Group to see how they turn the aspirational provisions of this Proposal into a practical and trusted financial asset.