How we are sleepwalking into the digital euro: discussion urgently needed

New phase of the digital euro project

The digital euro has been in the news repeatedly in recent weeks. The reason is that the European Central Bank (ECB) has decided to launch the next phase of the digital euro project. In this phase the ECB will technically prepare the Eurosystem for a possible first issuance of a digital euro. The preparation phase that followed the research phase (from 2021) and started in 2023 has now been completed. It is expected that the first pilots can start in 2027 with actual issuance in 2029.^[1]

Privacy First has previously expressed fundamental concerns about the digital euro.^[2] As more becomes known about the design of the digital euro, these concerns remain undiminished. The introduction of the digital euro is expected to have a major impact on society and on citizens' rights. Therefore, Privacy First calls for a much more robust debate about whether the digital euro should be introduced and how the financial privacy of citizens will not deteriorate further.

In 2023 the European Commission published a legislative proposal to establish the legal framework for a possible digital euro, but up to this moment there has not yet been any real political discussion in the individual EU Member States or Europe on the plans. Will politicians at any point still dare to say no to a system in which so much has already been invested? Do we not collectively sleepwalk into a system where it is unclear what the pros and cons are for society and the fundamental rights of citizens?

If plans to issue a digital euro proceed further, Privacy First finds the following issues need to be addressed with urgency and in detail:

• The concentration of power in a European institution (the ECB) which is not democratically accountable.
• The lack of real countervailing power to the ECB while it is virtually impossible to hold the ECB liable for its actions.
• Tension between the role of the ECB and the practical rollout of the digital euro by commercial companies (banks and payment service providers), that will pass on the costs to the (business) customer.
• The ECB single-handedly deciding on the design of the euro digital system, while the design is not a mere technical decision.
• The ECB shying away from responsibility for damages that users or intermediaries incur because of actions or (technical) errors that are caused by the ECB.
• The fact that alternatives with possibly less risk to citizens’ fundamental rights are not taken into consideration.

We explain these issues in more detail below.

ECB to issue euros directly to citizens

The digital euro is to become a complement to coins and banknotes. Unlike digital money that commercial banks issue, the ECB will issue the digital euro itself. If the plan succeeds, Europeans can put digital euros in a so-called ‘wallet’ and use it for online payments. There will also be an offline version with ‘cash like’ features.

If the ECB itself starts issuing digital euros, this will lead to an even greater concentration of power at the ECB than is already the case. The consequences and impact thereof on citizens are unchartered territory.

Limited transparency and countervailing powers

In Europe the ECB is positioned as an independent institution based on the principle that politics should not influence the central bank. If governments would have influence over the central bank, politicians could be tempted to change interest rates to create an economic boom in the short term or use central bank money to finance popular measures. This would seriously damage the economy.

The ECB’s position as an independent institution means the ECB does explain its policy decisions in hearings and press conferences but also means the ECB cannot be held accountable politically nor in law. This limited legal accountability is mainly caused by two factors.

First, the European Court of Justice sets high thresholds before the ECB is held accountable. For example, EU institutions such as the ECB are only liable for damages caused by them if there is a ‘serious breach’ of a rule of EU law. Furthermore, damages can only be claimed at the European Court. Having to go to the European Court is a high and costly threshold for citizens, while the turnaround time for a case before the European Court regularly takes around 2 to 3 years. A search of the database that includes all legal proceedings initiated against the ECB yields no successful claims against the ECB.

Commercial parties are obliged to roll out the digital euro and maintain customer contacts

Although the ECB will issue the digital euro, it will be distributed exclusively through commercial banks and payment service providers. These parties will be obliged to make the digital euro available to the public. They will be responsible for carrying out all the operations normally associated with opening and maintaining a regular bank account, such as anti-money laundering checks at onboarding, transaction monitoring and customer service.

A special function that banks will have to set up and maintain is the so-called ‘waterfall functionality’. It is expected that many people will find it convenient to link their digital euro account to a regular bank account. Because the public will probably only be allowed to hold a maximum of 3,000 digital euros and there that amount will be exceeded if a user receives digital euros, the waterfall function will have to be set up. The function will automatically transfer the excess amount of digital euros to the linked bank account. Conversely, a deficit in the digital euro account can also be transferred directly from the linked bank account (‘the reverse waterfall function’). This functionality comes with risks.

The ECB supervises the commercial parties that are obliged to distribute the digital euro. The ECB will therefore monitor that banks and payment institutions carry out distribution correctly (and, for example, manage related IT risks adequately) and services digital euro users adequately. The ECB can impose fines if these parties fail to comply with the rules designed by the ECB.

At prices that the ECB will monitor

The ECB has promised that the digital euro will be free for consumers. As the development, rollout and maintenance of the digital euro system is expensive^[3], banks and payment institutions will charge their business customers that have to (compulsorily) accept the digital euro for the costs they incur.

The charges that banks are allowed to charge must be ‘proportionate’ according to the draft regulation.^[4] The ECB will monitor whether the fees that banks are going to charge are proportionate.

The ECB decides on design and application options

The design of the euro digital system is determined by the ECB. The proposed rules for the introduction of the digital euro set the boundaries that the ECB will have to stick to, but the ECB has ample room to make its own choices and interpretations.

Privacy First will not elaborate in detail on the possibilities and risks that the digital euro brings but points out that designing the digital euro system is not a purely technical exercise. Introducing the digital euro means:

• Risks to privacy, for example due to the establishment of a database in which the ECB will register all payments. This database is within the reach of intelligence and police services[5] and will be a key target for cyberattacks.
• The possibility of programmable money, i.e. money that can only be used for certain purposes.[6];
• The likelihood that the use of the digital euro will be made mandatory indirectly, for example because the government pays out certain subsidies or other kinds of benefits exclusively in digital euros. A citizen who does not want to use the digital euro will not be able to claim the subsidy in question (this would then be his/her ‘own choice’).
• The risk of cash being phased out, while this is the only form of money that provides real anonymity and is accessible to everyone. As the use of the digital euro increases, cash will have to be withdrawn from circulation in order to keep the amount of money issued directly by the ECB at the same level or prevent it from becoming too large.
• Indirect mandatory use of the digital identity (‘the EUDI wallet’). To be able to use the online version of the digital euro, citizens will require a digital wallet. Linking or integrating the digital identity with the digital euro is thus a likely prospect.[7] At present, rules that effectively require banks to make use of the digital identity are in the making.[8] Does this mean that the digital identity will become mandatory?
• A huge concentration of power at the ECB, while democratic control over the ECB is lacking and initiating legal proceedings against the ECB is very difficult with slim chances of success.
• Increased risk of cyberattacks on critical infrastructure, as the online version of the digital euro adds an extra layer of complexity to the existing digital payment infrastructure.

The ECB shies away from responsibility

Just as things can go wrong with current payment transactions, things can go wrong when paying with or receiving digital euros. Payments can be disputed because the purchased item has been damaged or paid for without the consent of the payer. Also, sometimes technical errors occur, which cause a transaction amount to deviate or a transaction to be executed twice. Finally, there may be fraud such as identity fraud or interception of payment data. If these kinds of errors currently occur, payers or recipients can usually address the bank or the merchant.

For transactions where the digital euro will be used, there can of course also be (technical) errors or fraud. The ECB however states that it will not recognize any liability in this respect. It will always be the bank, the payment service provider, the merchant or, in some cases, the consumer who is liable.^[9]

The ECB's position is remarkable as it is not in line with the European Treaty, which states that the ECB is liable for any damage it causes in the performance of its duties.^[10] The ECB asserts that the digital euro is risk-free^[11], but this is misleading. After all, there are all kinds of situations to be foreseen in which errors may be attributable to the ECB.

For example, a hacked digital euro account where money is automatically deposited in digital euros without the intervention of the user (the reverse waterfall) could lead to the unlimited withdrawal of money from the linked commercial bank account. Furthermore, the digital euro uses existing payment structures and will expose the use of the euro to the same risks that already exist when using digital money issued by banks.

The ECB as issuer of the digital euro must consider that risks materialize and cannot simply pass financial losses on to other parties in the payment chain. For affected users, an easily accessible mechanism will therefore have to be set up, under which they can recover damages for failures that are caused by the ECB. Without such a system, users of the digital euro will be left empty-handed.

Where is the voice of EU citizens?

In 2022, the European Commission organized a ‘have your say’ on the digital euro. More than 19,500 European citizens took the time to respond to this consultation.^[12] Not one response was positive.

Four years after the ECB started this project, many questions remain about the usefulness and necessity of the digital euro. The ECB presses on with the digital euro. The Ministers in the Eurogroup have not raised any objections until now. Many others, however, including the rapporteur of the European Parliament, doubt the added value of a digital euro.^[13] Others question the added value of a digital euro.

Privacy First observes that it is still unknown whether the digital euro really meets a need and what the exact consequences will be for citizens. At the same time, it is clear that the digital euro poses major risks and that the ECB has tasks and roles in design and execution without a clear system of checks and balances being in place.

The ECB has been investing in the development of the digital euro for years, while the democratic debate in the EU Member States is not taking place. Decision-making is also happening at the level where citizens’ voices are really heard and taken into account. Consequently, there is a good chance that we will be sleepwalking into the digital euro without a real view of impact and risks and without considering possible alternatives with less risk to the fundamental rights of citizens and less concentration of power at the ECB.^[14]

Privacy First calls on politicians to prevent the rollout of the digital euro without serious democratic discussion and legitimacy. The introduction of the digital euro cannot depend on a single voting procedure in Brussels but requires a much broader debate.

 

^[1] Progress on the preparation phase of a digital euro - Closing progress report

^[2] The digital euro: prelude to mass surveillance at European level? | Privacy First

^[3] The ECB estimates the cost to the commercial sector at between €4bn and €5.77bn. Banks estimate the cost at around €18 billion. See for example Digital euro: one cost may hide another

^[4] See Article 17 of the Proposal for a Regulation on the Digital Euro (‘the Regulation’): https://eur-lex.europa.eu/resource.html?uri=cellar:6f2f669f-1686-11ee-806b-01aa75ed71a1.0010.02/DOC_1&format=PDF

^[5] Art. 32 of the Regulation.

^[6] See an explanation on p. 8-9 of this publication of the Dutch Central Bank: https://www.dnb.nl/media/espadbvb/central-bank-digital-currency.pdf

^[7] The European Digital Identity Framework (Regulation (EU) 2024/1183) already caters for the necessary functionality. See: https://ec.europa.eu/digital-building-blocks/sites/spaces/EUDIGITALIDENTITYWALLET/pages/694487738/EU+Digital+Identity+Wallet+Home

^[8] See Privacy First's consultation response to European Banking Authority proposals: https://privacyfirst.nl/en/articles/digital-identity-stealthily-becoming-mandatory-after-all/

^[9] A stocktake on the digital euro - Summary report on the investigation phase and outlook on the next phase p. 26-27.

^[10] Art. 340 of the Treaty on the Functioning of the European Union.

^[11] Shifting payment landscape: what a digital euro will bring

^[12] A digital euro for the EU

^[13] See Rapporteur Draft Report on the proposal for a regulation of the European Parliament and of the Council on the establishment of the digital euro: https://www.europarl.europa.eu/doceo/document/ECON-PR-778136_EN.pdf. See also Eurogroup results of 19 September 2025: https://www.consilium.europa.eu/en/meetings/eurogroup/2025/09/19/ https://www.consilium.europa.eu/en/meetings/eurogroup/2025/09/19/

^[14] See for example: Does Europe really need a new payments system? https://www.electronicpaymentsinternational.com/comment/does-europe-really-need-a-new-payments-system/?cf-view