Europe undermines Visa and Mastercard: the new digital Euro

Translated by Mariateresa Tauro

Over the last years, the use of cash has gradually declined, leaving more and more room to digital payment methods, which are now thought to be faster, safer and more efficient. Since 2019, the field of credit cards, debit cards, and digital wallets has globally registered an annual average growth rate of 8.8%, reaching about 1,900 billion dollars in income. In Italy, the number of electronic transactions made by consumers has gone from 6 billion in 2019 to 11 billion in 2024, with an annual average growth rate of 16.7%. According to evaluations, this will lead the number of transactions to 20 billion in 2029.

On the one hand, Europe has welcomed this transition towards electronic payment methods, since it’s the best solution to hinder tax evasion and the black economy. On the other hand, it hides a potential criticality: almost total dependence on bodies based outside Europe. Indeed, approximately 65% of electronic card transactions made in the Eurozone exploit foreign payment circuits, with American companies Visa and Mastercard holding the largest share of the market. At the moment, only a few European countries possess an autonomous payment circuit; even in those rare cases, as is the case with the Italian Bancomat system, its operation is limited to the national territory only.

To face the monopoly of US giants in Europe, a new project has been launched, entirely produced and managed by the European Central Bank (ECB) and credit institutions across our continent.

This digital Euro project dates back to 2nd October 2020, when, in a report published by the ECB, it was first described as a revolutionary tool that could provide a solution to scenarios such as a potential drastic decline in the use of cash as a means of payment or even to avert a disruption in the provision of payment services by international circuits. Therefore, from 2021 to 2023, the involved institutions launched an initial investigation phase, during which numerous consultations and discussions were held to shape the idea and structure of the new digital Euro currency.

This was followed by a two-year preparatory phase, which began in November 2023, during which efforts were made to lay the foundations for the product’s launch. All the objectives set for the project have been achieved, and all these years of work have led to a first draft of the regulation governing the project's management and functioning. Moreover, all potential providers for the platform and the digital infrastructures have been identified, as well as a technical analysis has been conducted with the involved bodies so as to guarantee a digital project that satisfies high standards of privacy, quality, safety and usability.

In a recent statement issued by the board of directors of the European Central Bank, it was announced that, having successfully completed the preparatory phase, the project is moving on to the next phase, in which the plan for a single European virtual currency will begin to take shape, culminating in its first issue in 2029.

Although the digital Euro preserves some characteristics similar to the well-known cryptocurrencies, such as Bitcoin and stablecoins, it will be a unique form of electronic currency, issued and guaranteed by the European Central Bank to complement cash and other existing digital instruments. The ECB is entrusted with the role of warrantor of the value, which will be 1:1 with the paper Euro, known to everybody. Whereas the distribution will be entrusted to a network of authorised mediators and regulated services. They will be in charge of guaranteeing the currency availability through digital wallets on smartphones, including also solutions to guarantee the offline service, with the aim of retaining the immediacy of the cash when the internet is not available. It is intentionally a plan different from Bitcoin or stablecoin, since it is centralised, regulated and conceived to be traceable so that the application of monetary policies and anti-money laundering control measures.

However, numerous questions remain regarding privacy issues related to the use of this new digital tool. While the complete traceability of transactions and individual currencies is essential to ensure user safety and prevent illegal use of the system, constant and detailed traceability could compromise citizens’ privacy. The ECB President Christine Lagarde intervened on the matter, reassuring that the architecture of the new digital currency will guarantee private transactions exactly as it would with the use of cash. Angelica Finatti, blockchain expert and commercial director of Fideiussioni Digitali, reiterated the same concept, stating that “There is no danger of widespread control.  Transactions will be treated as cash and protected by rigorous security mechanisms established by the ECB.”

The legislative procedure for the project regulation and adoption is still underway. The proposed regulation presented by the European Commission in June 2023 will first have to be negotiated by the European Parliament and the Council. Then, if the process proceeds without any unforeseen events, it will be adopted and subsequently acknowledged by member states in 2026. Only after this stage will the ECB decide on the next steps for the first issuance of the digital Euro.

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