- The trained economist Piero Cipollone has been chairman of the “Digital Euro” task force at the ECB since 2023, chairman of the Euro Retail Payments Board and chairman of the Euro Cyber Resilience Board for pan-European financial market infrastructures at EEuropean Zinterbank.
- Am 6. February he gave an interview to the Cyprus News Agency in which he discussed the ECB’s progress with the digital euro and explained its particular importance for small states like Cyprus.
- The interview with Piero Cipollone was von Thalia Neophytou for the Cyprus News Agency led. The publication comes with the kind permission of the European Central Bank.
The idea of a digital euro has raised many questions across Europe. Can you explain why the ECB is moving forward with this and what practical implications it could have for citizens, households and businesses?
First of all, I would like to clarify that we have not yet issued the digital euro and will not do so until the relevant legislation is in place.
We think the introduction of the digital euro is a good idea – especially for citizens. It preserves their freedom to pay with money issued by their central bank – their money. And today, cash cannot be used in many cases, such as when paying online. The digital euro would make it possible to use the advantages of cash even in those use cases where central bank money cannot currently be used. In short: With the digital euro we are creating a digital version of cash.
For citizens, the biggest advantage is simplicity. With a single device you can pay anywhere in Europe, for any use case – it’s easy and gives you the freedom to pay the way you want. For companies, especially small businesses, which form the backbone of the Cypriot economy, the digital euro will help save costs. Because the costs of accepting digital payments will be significantly lower with the digital euro than they are today.
If citizens already pay digitally using private mobile wallets, why do we need a central bank digital currency?
Mainly because the market is very fragmented. If you want to cover all needs, you need multiple devices or applications. Some don’t work online, some don’t work in store – and you have to carry everything with you to be able to pay in all situations. The digital euro will provide a single instrument to pay anywhere. There are additional features that do not exist today – for example, an offline feature that allows payments with digital euros even when there is no electricity or no internet connection.
To answer your question, we need it because of its simplicity and its coverage of all online use cases as well as additional offline use cases. This is very beneficial for consumers.
I would like to add that we sometimes talk too much about consumers, but we should not forget that consumers are citizens too – and as citizens we should all be concerned about the resilience of the payment methods we use.
Currently, almost 70% of card-based transactions are processed by non-European companies. This concerns resilience – we hear about strategic autonomy and resilience everywhere, and yet we rely predominantly on non-European companies for something as basic as payments. As European citizens we should be concerned about this. With the digital euro we solve this problem.
Why is a digital euro relevant for a small, bank-based economy like Cyprus?
It will be particularly beneficial – especially for Cyprus. Today you have to use non-European means of payment. And that’s not free. Accepting payments through international card systems is expensive, especially for smaller merchants. We can estimate that it is three to four times more expensive for small businesses than for large retailers.
The digital euro would significantly reduce these costs as the ECB will not charge system fees. So we reduce transaction costs and the traders benefit. In addition, the existence of an alternative digital payment option gives smaller retailers more negotiating power compared to private providers. This is competition in practice.
Why is the ECB moving forward now while other central banks have postponed or even abandoned their plans?
First of all, it’s not clear that everyone else has abandoned or postponed their plans. That depends on the respective central bank. But what is important is that we look at ourselves and consider our own needs. The ECB is responsible for providing means of payment in Europe and ensure the resilience and reliability of the payment system.
We must ask ourselves: Are these conditions met in Europe today? As already mentioned, the situation is currently so fragmented that these conditions are not always met. These are the needs we have in Europe – and we must act now.
If we waste time thinking about what others are doing, our dependence on non-European payment providers will continue to grow and we will end up worse off.
Where are we currently with the introduction of the digital euro, and what are the next milestones?
There are two dimensions: the internal one – the preparatory dimension for which the ECB and the Eurosystem are responsible – and the legislative one.
We are making good progress on the legislative side. The European Commission’s initial proposal was published in June 2023.
Last December, the Council of the European Union reached an agreement that was very close to the Commission’s original position. Now we are waiting for the European Parliament’s decision.
According to the current timetable, Parliament should be able to adopt a position in May and we know that MPs are actively discussing the amendments. Hopefully we will have a position from Parliament by May. Then negotiations can begin and hopefully we will have legislation by the end of the year.
We are already working to be prepared so that we can issue the digital euro by mid-2029 if legislation is available. In the meantime, we will start a pilot project in 2027 – this means that we will then make the first payments on a test basis.
But we have to wait until 2029 for the currency to be released?
Look at it this way: the time it takes us to produce the infrastructure and be ready to spend it is equal to the time it takes the legislature to pass legislation.
Banks have expressed concerns that the digital euro could affect their liquidity through deposit outflows. How is the ECB dealing with this?
We’ve been thinking about this since the beginning of the project. Bank stability is a key concern for the ECB, as our monetary policy is transmitted through the banks. We therefore built in protective mechanisms from the start.
Firstly, the digital euro does not bear interest. So there is no incentive to move money from the bank account to the digital euro wallet.
Secondly, you do not need to have money in your digital Euro wallet to make a payment as we are introducing a so-called “waterfall solution”. In simple terms, this means: When you make a payment with digital euros, the money is automatically retrieved from your bank account, loaded into the wallet and transferred from there to the recipient. You don’t need to pre-load the wallet.
Does this apply online or offline?
Online – that will be the bigger use case. Of course, for offline payments you must have the money in your wallet beforehand.
Third, there will be holding caps.
And fourthly, only natural persons can hold digital euros, not legal entities. This also reduces demand. We have run simulations and even with relatively high holding caps, we do not see any financial instability.
This is public knowledge. We published a report and sent it to the European Parliament which shows this clearly. Financial stability is not at risk.
What will the holding cap be?
We don’t know that yet. This still needs to be discussed. There is a robust process for this, involving the European Central Bank, the European Commission and the Council.
It will be a comprehensive, clearly defined process that ensures that no one can decide to change the holding cap in the short term. The focus is exactly on the point you raised: ensuring financial stability.
In addition to financial stability, trust is crucial to the success or failure of the project. What guarantees can you give citizens regarding data protection and data security?
We built the entire project around the topic of data protection. Why? Because at the beginning of the process we examined people’s expectations. We heard two things: privacy and data security. These were the most important concerns.
We have designed the system accordingly. How do we ensure data protection is guaranteed? We will not have any personal data for the online application. We won’t know who is paying who. All the ECB sees are encrypted codes representing payers and payees – but we cannot identify the people behind them. The information remains with the banks, similar to today. The ECB will not know any data. This applies to the online application.
For the offline application, only the payer and the payee know the transaction details as the real money transfer takes place between their devices. This is the highest level of data protection possible with current technology. We move at the technological frontier and implement the applications as soon as they are available.
A question about monetary policy: The euro has appreciated against the dollar. Does this give the ECB more leeway to cut interest rates, or does the exchange rate not play a role in the decisions?
We do not have a specific exchange rate target. Of course, we take the exchange rate into account as an input in our projections. It is one of the many factors we use to forecast inflation dynamics. We’ll see what the new projections turn out and what impact that will have.
The euro appreciated at the beginning of 2026. It has been hovering around $1.18 and $1.17 for almost a year. After the event we saw a few weeks ago, it is now back to the level of previous months.
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