The European Central Bank’s (ECB) Digital Euro project is a critical endeavor shaping the future of digital currency in Europe. Italian banks have expressed their full support for this initiative. According to Marco Elio Rottigni, General Manager of the Italian Banking Association (ABI), the support stems from the CBDC (Central Bank Digital Currency) project embodying the concept of “Digital Sovereignty.”
However, this support comes with a critical condition. Due to the significant Capital Expenditure banks would have to bear in implementing the project, Italian banks have urged the ECB not to absorb the cost immediately but to spread the burden over several years. This request is part of a broader discussion about financial stability and the future of CBDCs in Europe.
Digital Euro Timeline and Objectives
The request from Italian banks follows the ECB’s Governing Council approval to move the Digital Euro project to its next phase. This approval was made during a meeting held in Florence on October 29–30.
Long-Term Target for 2029
The next phase begins after the two-year preparatory period concludes. According to the ECB’s plan, if EU legislation is adopted in 2026, a Pilot Phase will begin in 2027. Furthermore, the Full Rollout is tentatively targeted for 2029. This long-term goal provides banks with some breathing room to spread costs and implement the necessary technological changes.
Why Cost-Sharing is Necessary
The main objective of the concern raised by Rottigni is that European banks are already required to allocate substantial capital for numerous Compliance Regulations and technology upgrades. Thus, the additional cost for the Digital Euro would be a massive Financial Burden. The costs for integrating this new digital currency system, embedding it into their existing infrastructure, and setting up new security systems could reach hundreds of millions of euros.
Key Fears and Opposition Emerging in Europe
Despite the conditional support from Italian banks, the Digital Euro project faces strong opposition in other EU nations, particularly France and Germany.
Fear of Deposit Outflow
The primary concern raised by German and French banks is that if a Retail Wallet backed by the ECB is introduced, customers might withdraw their money from commercial banks and place it into CBDC wallets. They fear this could lead to a significant Outflow of Deposits from commercial lenders. Since deposits are the source of funds for banks’ lending activities, this outflow could affect overall financial stability.
Protecting Private Payment Systems
A group led by European Parliament member Fernando Navarrete submitted a draft report reflecting this concern. The report calls for the implementation of only a Scaled-Down Version of the Digital Euro to protect private payment systems, such as Wero, a joint initiative of 14 European banks. This reflects the desire among Europeans to ensure that the central bank currency does not drown out private sector innovation.
Call for a Twin Approach
Amidst these conflicts, Rottigni proposed a compromise. He suggested that Europe should adopt a “Twin Approach,” combining the ECB’s Digital Euro with commercial bank-backed digital currencies. This would balance the CBDC’s sovereignty objective with the private sector’s innovation.
Efforts for Technological Advancement
The ECB is also taking steps to accelerate the development work for the Digital Euro.
Contracts with Technology Providers
Last month, the ECB finalized Framework Agreements with seven technology providers to support the potential development of the Digital Euro. These agreements aim to gain expertise in crucial areas such as fraud and risk management, secure payment data exchange, and software development. Providers include fraud detection expert Feedzai and security technology firm Giesecke+Devrient (G+D).
Introduction of New Features
These technology firms are set to develop several new and important features for the Digital Euro. One is the “Alias Lookup” feature, which will enable users to send or receive money without knowing the recipient’s payment service provider. They will also build Offline Payment Capabilities, allowing transactions even when there is no network connection. These features aim to enhance the Digital Euro’s usability and Accessibility.
ECB’s Duty to Avoid Lagging Behind
With 137 countries and currency unions representing 98% of the global GDP exploring CBDCs worldwide, Rottigni’s final warning is clear: “Europe must not lag behind.” The conditional support from Italian banks encourages the ECB to move swiftly with the Digital Euro. At the same time, the request to spread the cost burden over time reflects the realistic expectation that this transition should occur smoothly without harming the financial sector. The ECB is compelled to find a balanced path that safeguards the sovereign purpose of the Digital Euro while addressing the concerns of regional banks.
