ECB Emphasizes Coexistence of Cash and Digital Euro

By: Eva Baxter

The European Central Bank (ECB) has made clear its commitment to maintaining the presence of physical euro banknotes and coins, even as it continues to develop a state-backed digital euro. Piero Cipollone, an ECB Executive Board member, has reiterated that the digital euro is designed to coexist alongside cash rather than replace it, reinforcing both mediums as central pillars of the European payment system. As the financial landscape evolves with the rise of stablecoins and private digital currencies, the ECB's approach aims to preserve payment autonomy and ensure financial stability in Europe.

The decision to retain physical cash alongside a digital counterpart is driven by the need to offer choices to European consumers. Cipollone highlighted that both cash and digital euros will be granted full legal tender status. The ECB believes that the introduction of a digital euro will mitigate the proliferation of foreign-pegged stablecoins, which have seen increasing use in everyday transactions and cross-border payments. The absence of a public digital option, he argues, would leave the field open for unregulated digital currencies, potentially undermining the euro's position.

Despite the ECB's plans to innovate, public appetite for a digital euro remains subdued, according to surveys. A working paper published in March revealed that Europeans still favor traditional forms of currency, with a significant preference for physical cash and standard bank deposits over digital currencies. Nonetheless, the ECB emphasizes that the introduction of a digital euro must not come at the expense of economic stability and insists on a rollout strategy that accommodates both urban and rural areas across the continent.

The ECB's stance serves as a message that the bond between innovation and stability is paramount. As such, it aligns with calls for stronger global regulations on stablecoins to prevent the erosion of national currencies. The ECB plans to foster the development of a regulated euro-pegged stablecoin ecosystem to complement the digital euro, ensuring that the euro remains a central player in the evolving financial arena. These efforts together underscore the ECB's vision of a balanced, secure, and inclusive financial system that caters to the diverse needs of European citizens.