Will the Digital Euro Replace Banks? Lawmakers Fear Impact on Commercial Deposits

ECB Pushes Digital Euro Amid Concerns Over Privacy and Bank Stability

The European Central Bank is advancing plans for a digital euro, aiming to provide Europeans with a reliable payment option even during major disruptions, but the proposal has sparked caution among lawmakers over privacy and the impact on commercial banks.

Piero Cipollone, a member of the ECB Governing Council, told the Parliament’s Economic Committee that the digital euro “will ensure that all Europeans can use a free, universally accepted digital payment method at any time, even in the event of significant disruptions.”

He highlighted the role of a central bank-backed currency as a safety net in crises such as cyberattacks, network outages, or geopolitical tensions affecting international payment systems.

Could the Digital Euro Shift Deposits Away from Banks

Concerns from EU parliamentarians have centred on the potential effects on private banking.

Lawmakers warned that accounts offered directly by the ECB could draw deposits away from commercial banks, undermining the private sector.

Pierre Pimpie of the Patriots for Europe group said, “Accounts in private banks could be emptied,” and questioned the ECB’s ability to control caps on digital euro accounts during a crisis.

Cipollone responded that any limits would be based on “rigorous analysis” and noted that financially savvy users could still turn to U.S. stablecoins in case of instability.

Privacy Remains a Core Debate

Privacy has emerged as a key sticking point.

Some lawmakers fear that a digital euro could expose sensitive financial data.

Cipollone assured that the central bank “will not know anything about the payer and the payee” and emphasised that offline solutions for the digital euro would offer privacy comparable to cash.

Legislation Timeline Faces Delays

Efforts to legislate a central bank digital currency have been underway since 2023, but progress has stalled amid political disagreements and the 2024 elections.

Cipollone said the ECB anticipates legislation to be in place by the second quarter of 2026.

The digital euro requires approval from the European Parliament, the European Commission, and the European Council, a process expected to take several months and potentially delay a vote until mid-2026.

Implementation Could Stretch to 2029

Once legislation passes, the ECB plans a multi-year rollout to develop and test the digital euro’s infrastructure.

Cipollone estimates that this process could take between two and a half and three years, positioning a potential launch around 2029 if no additional delays occur.

Private Sector Concerns and Safeguards

Some lawmakers remain sceptical about the digital euro, framing it as a solution searching for a problem.

Fernando Navarrete Rojas, responsible for a parliamentary report on the initiative, described it as acceptable only as a “Plan B” if private alternatives fail, stressing the importance of safeguards for financial stability and privacy.

Despite delays, Cipollone noted that physical cash will remain vital and private banks can benefit from the digital euro’s open standards to provide more advanced services.

Digital Euro as a Contingency Against Global Risks

Cipollone emphasised the ECB’s intention for the digital euro to complement existing payment systems, citing reliance on non-EU providers and the potential for the U.S. to leverage its dominance in stablecoins.

He said, “The digital euro at that point would be the least of our problems,” acknowledging that crises would affect broader financial dynamics beyond the currency itself.

Vote Likely Delayed Until Mid-2026

Given ongoing discussions, a vote in the European Parliament may not occur before spring or early summer 2026.

Markus Ferber, a committee member, noted that “a vote sometime in spring or early summer next year sounds like a plausible timeline,” highlighting the protracted nature of the approval process.

The digital euro remains framed as both a practical payment backup in times of crisis and a test of Europe’s ability to manage the rise of digital currencies while balancing privacy and financial stability.