The digital euro is not a cryptocurrency like Bitcoin or Ethereum. It will be money from the European Central Bank (ECB) that will be available in a digital format for making payments, an electronic equivalent to cash. A new free, secure and private payment option that will be able to be used in the eurozone.

And it is that, faced with a panorama in which fewer and fewer people carry cash in their pockets due to being able to make any payment using their mobile, tablet, card or PC; the European Union has decided to take action on the matter and start a process of evolution in the financial system of the eurozone: the first steps towards the digital euro. This new system would also increase the stability of the monetary system, while responding to the growing demand for electronic payments.

What is the backing of the digital euro? How will the digital euro work? When will the digital euro arrive? Worldline and Monei, two companies with the green light from the ECB to be part of the change What is the backing of the digital euro? As the European Union explains, the digital euro would not be the same as a cryptocurrency or a stablecoin since it would be backed by the ECB, which has the mission of maintaining the value of money regardless of whether it is in physical or digital format . In contrast, cryptocurrencies depend on the entity that issues them to provide them with long-term stability by offering credibility and an attractive financial plan. In addition, the latter use the personal data of users for commercial purposes.

Backing of the Digital Euro

Once we have a better understanding of what the digital euro is, let’s understand what backing it would have. For this, it is necessary to make a distinction between what is public money and private money:

Public money: the money that is created in the ECB is known as Central Bank money or public money and is issued by a public institution -in this case the ECB-, so it is backed by the public sector.

Private money: it is the one created by commercial banks or private financial entities.

Functionality of the Digital Euro

The payments you make with a card or through Internet payment services, for example, are private money transfers. With the creation of the digital euro, citizens of the eurozone will be able to access public digital money, combining the facilities of electronic payments with the advantages of public money. How will the digital euro work? Its operation is very simple, being practically the same as the money we are used to. The first thing you will have to do, once it is available, will be to create a digital euro wallet in your bank or in an authorized public entity such as a post office. The next step will be to load your virtual wallet, you can do this by linking a bank account or depositing cash.

 After this, you can start making payments with your digital euros, both online, in physical stores that accept digital payments or between individuals. Also, remember that it will work in the entire eurozone, so you will be able to use the digital euro in Spain, but also in any other country you travel to that is part of this monetary policy.

Transactions will be immediate and secure, the ECB will not access or store your data, and you will also be able to carry them out without being connected to the internet. Likewise, some of its features, such as immediate payment between individuals, cannot help but remind us of how Bizum works. On the other hand, when you receive money in digital euros, you can keep it in your virtual wallet or choose to deposit it in your bank account. Of course, according to the European Central Bank, these wallets will have a limit, although it has not yet been determined how much it will amount to. What has been specified is that if a user wishes to pay large amounts, which exceed the established limit, they will be able to do so if they link their wallet to their bank account.

Arrival of the Digital Euro

When will the digital euro arrive? The decision to launch this project has not yet been issued. In July 2021, the research phase began to define the most appropriate design for the digital euro and how financial intermediaries could offer user services based on said currency. For now, the research phase has been overcome, during which the capacity that this currency would have to satisfy the needs of those who are going to use it for their daily purchases and expenses, as well as its viability, limitations or its security models, has been studied. The report that collects all this data was published on October 18 of this year.

After this, on November 1, the so-called preparation phase began, whose objective is to define the bases for the possible issuance of the digital euro. During this process, work will be done to finalize the creation of the regulations governing the operation of this digital currency, as well as to select the providers responsible for developing a platform and infrastructure for it.

In addition to this, tests will be carried out to verify that the digital euro meets the requirements of the Eurosystem and the needs of its future users. Likewise, this preparation phase is divided into two stages. The first will last two years, and based on its results, the Governing Council will be responsible for giving the green light to the entry into the second stage, as well as defining its duration. Therefore, we will have to wait until 2025 to know if the digital euro continues. And, after this, we will surely have to wait, at least, one more year until it comes into effect, so the digital euro will not arrive until 2026 at the earliest.

 Companies Involved

Worldline and Monei, two companies with the green light from the ECB to be part of the change In September 2022, the ECB selected Worldline -one of the leading companies in payment services- for the prototyping of a front-end user interface for the digital euro. As Nicolas Kozakiewicz, the company’s innovation director, explains, “Worldline is developing the use case of offline peer-to-peer payments, which focuses on payment between individuals, for the future digital euro. We have the experience and the assets to build a digital wallet that supports the physical storage of funds that can be transferred without connectivity.

 The purpose of the prototyping exercises is to test the extent to which the technology behind a digital euro integrates with various use cases.” On the other hand, Monei, the fintech that simplifies and streamlines digital payments, obtained the green light from the Financial Sandbox of the Bank of Spain at the beginning of 2023 to launch its own digital euro: EURM, a project that facilitates the sending of euros on a global scale thanks to a token linked to the euro, parity 1:1.

In the testing phase, the user (individual) only has to enter their phone number, verify their identity through video identification, and load the wallet with real euros through Bizum. Automatically, as many EURMs are created as real euros the user has deposited and can now send EURMs to the rest of the registered users. EURMs can be exchanged for euros at any time, and there will always be the same number of EURMs as euros that back them. The digital euro represents a significant step towards a modernized and efficient payment system in the eurozone, aligning with the digital future of financial transactions.