The EU is getting ready to launch the digital euro and will soon issue a proposal for a legal framework

On Wednesday, the EU will take the next critical step towards releasing a digital version of the euro, a contentious initiative that has already drawn criticism from the public, lawmakers, and banks.

From China to the United States, Jamaica to Japan, dozens of central banks around the world are investigating or have already implemented digital currencies as electronic payments increasingly dominate how people spend their money and cash usage declines.

The initiative to establish a digital version of the euro began in 2020, when European Central Bank (ECB) President Christine Lagarde proposed the notion and the Frankfurt-based institution opened a public survey.

Digital euro supporters argue that it will supplement cash and prevent the ECB from leaving a void that may be filled by private, mostly non-European, companies and foreign central banks.

Critics doubt the necessity for a digital euro, banks warn of huge hazards, and an ECB survey indicated popular anxiety over payment privacy.

"It is not a good business case to simply duplicate the existing payment infrastructure with the digital euro." For the time being, the digital euro appears to be a solution in search of a problem, according to German MEP Markus Ferber.

On Wednesday, the European Commission, the EU's executive arm, will publish a proposal that would serve as the legal framework for the ECB to establish a digital euro.

The final law must be supported by all 27 EU member states as well as the European Parliament.

The ECB is expected to give the formal go-ahead for a digital euro in October, with availability beginning in 2027.

The benefits 'outweigh' the costs

According to a draught proposal seen by AFP, the commission stated that the digital euro's "long-term benefits... outweigh its costs" and cautioned that "the costs of doing nothing can potentially be very large."

Individuals residing in the eurozone and tourists would be able to use the currency.

During a panel discussion in March, Lagarde said that digital money was necessary for resilience and to "protect European payment autonomy."

Many of the payment methods are "not necessarily European," she remarked, adding that relying on a single source of payment is "very unhealthy."

Visa and Mastercard, both based in the United States, presently dominate the worldwide card payment business.

Her remarks are consistent with the EU's increased emphasis on bringing production to Europe or closer to the bloc, as opposed to depending on other nations.

Others, though, fear that the EU's intentions would cause problems, particularly for banks.

In March, the European Banking Federation (EBF) warned of a "significant risk for banks" due to the possibility of bank runs as clients retain their assets in digital euro accounts and wallets, removing them from the banks' balance sheets.

The preliminary plan contains a measure limiting the amount of money people may store in digital euros; ECB officials have recommended a ceiling of EUR 3,000 (about Rs. 2,69,500).

The digital currency will also be awarded "legal tender" status, which means it must be accepted as payment, according to the commission.

According to the initial plan, there would be exclusions for small firms who do not take any kind of digital payment.

Concerns about personal privacy

The ECB faces a long struggle to gain Europeans' trust. According to a public consultation, privacy is the number one priority when it comes to the digital euro.

To assuage people's anxieties, the ECB has stated that it will not seek to regulate how individuals use digital money or use it for monitoring, as opponents believe China does.

"The ECB would not impose any restrictions on where, when, or to whom people could pay in digital euros," stated ECB executive board member Fabio Panetta in January.

According to the draught text, the digital euro "will be designed to minimise the processing of personal data by payment service providers and the ECB."