The European Central Bank should press ahead with a digital euro to prevent fragmentation in Europe's payments system and preserve the role of central bank money as finance becomes increasingly digital, ECB Executive Board member Piero Cipollone said on Tuesday.

Cipollone said Europe risked becoming overly dependent on foreign-controlled payment infrastructure and could see its monetary sovereignty weakened if it failed to provide a pan-European digital payment option. The warning speaks to a long-running theme in European policy circles, where officials have repeatedly pointed to the euro area's reliance on payment infrastructure and card schemes owned outside the region for everyday transactions. He also warned that tokenised finance could develop across closed and incompatible platforms, potentially undermining the “singleness” of money — the principle that all forms of a currency must remain interchangeable at par.

The ECB's proposed digital euro would provide a common payment infrastructure for transactions across the euro area, while allowing private payment providers to build services on top of it. Unlike deposits at commercial banks or balances with private payment apps, a digital euro would be a direct claim on the central bank — a status the public today holds only the form of physical cash.

Easing Concerns Over Deposit Flight

The central bank is also seeking to address concerns that a digital euro could drain deposits from commercial banks, which rely on deposits as a core source of funding for lending. Holding limits, which cap how much digital euro users can hold, are central to that effort and reflect the ECB's stated design intent that the digital euro function as a means of payment rather than a savings product. ECB analysis of 2,025 banks found that holding limits between €500 and €3,000 would have a limited impact on banks' liquidity and funding under normal conditions.

Under a €3,000 limit, the ECB estimates that the aggregate liquidity coverage ratio would fall from 166% to 163% when excluding deposit inflows linked to the declining use of cash. The net stable funding ratio would fall from 128% to 127%.

The ECB estimates that broader digitalisation could generate €127 billion in additional bank deposits by 2034, more than offsetting estimated digital-euro-related outflows under its business-as-usual scenario for holding limits of up to €3,000.

Timeline: 2027 Pilot and 2029 Launch Target

The ECB has not yet decided whether to issue the digital euro. The legislative process is under way — the European Commission tabled a digital euro legislative proposal in June 2023, which is now being considered by the European Parliament and the Council of the EU — with the central bank aiming to be ready for a potential launch in 2029 if legislation is completed by the end of 2026. The project's fate therefore hinges on the legislative timeline.

A 12-month digital euro pilot is planned to begin in the second half of 2027, with 36 payment service providers selected to take part in the exercise and test the technical and operational readiness of the planned infrastructure.

A Broader Push Into Tokenised Finance

Cipollone also highlighted the ECB's wider work on tokenised finance, including Pontes, which allows tokenised transactions to be settled in central bank money, and Appia, a planned framework for connecting tokenised central bank money, bank deposits and other regulated assets. Settlement in central bank money is regarded in financial-market practice as the safest form of settlement, since it removes exposure to commercial bank counterparty risk. Both initiatives form part of the ECB's broader experimentation with on-chain settlement of tokenised assets.

According to the ECB, the broader objective is to keep central bank money at the centre of Europe's financial system while giving private firms the infrastructure to develop and compete across the region.