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A seemingly contradictory move by the German central bank highlights a quandary that central bankers all across Europe are facing. The Bundesbank is a staunch supporter of the European Central Bank’s plans to launch a digital euro. At the same time, it has started a lobby campaign to promote the use of cash.
In fact, both the push for cash and for the digital euro are — forgive the pun — two sides of the same coin. Central bankers all across the euro area are fighting a fraught battle to stay in control over the processing of payments, a mundane yet crucial part of the financial plumbing. Like electricity or water supply, most people will only notice its overarching importance once it is disrupted.
And central bankers do have good reasons to become nervous here. Their key leverage over payments in the soon-to-be 21 member states of the euro area — cash — is in secular decline. In 2024, coins and banknotes were only used in 52 per cent of transactions, compared with 72 per cent just five years earlier, ECB data shows. A whopping 12 per cent of companies refused accepting cash flat out last year, a threefold increase in just three years.
Apart from diehard cash aficionados who cherish bank notes as “printed freedom”, this trend is not a problem per se. What is making European central bankers increasingly uneasy is that the substitute to cash more often than not is in the control of non-European institutions. Instead, US-based firms like Visa, Mastercard and PayPal rule the waves.
Three out of four euro area countries lack a meaningful domestic scheme for digital payments in shops. And digital tokens mirroring the value of traditional currencies — so-called stablecoins — are predominantly denominated in dollars. Issued by private actors but politically pushed by the US government, they are growing at a vigorous pace and create manifold risks for monetary policymakers in Europe.
In an age when the US government has embarked on a hard-nosed pursuit of its own narrowly defined economic self-interest that can include the weaponisation of economic might, having the backbone of your financial plumbing under foreign control is not an ideal place to be. Imagine a scenario where a US president links other political demands with the threat of banning US-based payments firms from doing business in Europe.
The ECB’s answer to this quandary is to issue the electronic equivalent of coins and banknotes: a digital currency that is set to share the role as legal tender to be used in stores, online and in peer-to-peer transactions between individuals. The ECB wants to introduce a digital euro this decade if it gets legal clearance in Brussels.
This is where things get messy. An alliance of Europe’s largest lenders, including Deutsche Bank, BNP Paribas and ING, is spearheading a lobbying push against the digital euro, and it won the backing from the Brussels MEP who assessed the idea on behalf of the European parliament.
Both are calling for a scaled-down version of the digital euro, warning it could undermine a last-ditch attempt by the European banking industry to finally launch a viable competitor to Visa, Mastercard and PayPal. Dubbed Wero, the fledgling rival was launched in 2024 and says it already has more than 46mn users in Europe. It started with limited functionality of person-to-person payments but is set to be broadened into a full-scale rival to the US incumbents and a “sovereign European payment ecosystem”.
The ECB disputes that the digital euro established a rivalling option to Wero, arguing it just created infrastructure that can be used by private sector actors. But given the intricate economic nature of payment schemes, even the perception of a looming rival can backfire, as individual hesitation makes life harder for everyone else.
For merchants, Wero gets more attractive the more households in the bloc use it. And households are more likely to use the new payment scheme the more options to use it they find — a classic hen-and-egg problem that economists call a “network effect”.
This is hard to overcome even in the best of circumstances, in particular if incumbents are already established as individual users and merchants face little if any incentive to jump ship.
Due to unequal time schedules, with Wero rolling out right now while the ECB can get going in 2029 at the earliest, the euro area is facing an awkward risk. If the digital euro first obstructs Wero and then falters due to political opposition or its technical complexity, the bloc could end up in a situation where it does not have either.
olaf.storbeck@ft.com