On June 28, 2023, the European Commission published a proposal for a regulation (“dEUR Regulation”) on the establishment of the digital euro (“dEUR”). With this proposal, the European Commission has started the legislative process, at the end of which the adoption by the European Parliament and the Council could take place. In the view of Fabio Panetta, Member of the Executive Board of the ECB, and Valdis Dombrovskis, Executive Vice President of the European Commission, the Digital Euro is necessary to make the euro monetary system keeps up with digital advances. Whilst we have already positioned dEUR Regulation within the existing regulatory framework in PayTechLaw article “The new EU payment service regulation – Kick-off of our PSD3 series” of 3 July 2023, we will now provide a brief overview of the main contents of the draft dEU Regulation:
Issuance of the dEUR by the ECB and legal framework
It comes as little surprise that the ECB is to issue the dEUR. This is logical insofar as the issuance of the euro is also authorized by the ECB. Payments with the dEUR are essentially to be put on an equal footing with payments with cash and scriptural money. Therefore, for example, the regulations on payment services (e.g., the future PSD3) are also to apply to payments with the dEUR. The provisions on the prevention of money laundering and terrorist financing are also to apply accordingly to payments with the dEUR.
dEUR as legal tender
Probably one of the most important provisions in the proposal is the requirement that the dEUR must be accepted as legal tender, with a few exceptions. The acceptance obligation applies not only to governmental bodies as creditor of a monetary claim (e.g., the tax authorities), but also to the private sector (e.g., retailers). It should also not be possible to exclude the acceptance obligation by means of general terms and conditions.
Distributing the dEUR
Banks and other payment service providers are to be obliged to extend the products they offer to the dEUR. This is intended to ensure that users of the dEUR have extensive options for funding and defunding accounts held in the dEUR. In effect, the distribution of the dEUR is to be outsourced to the private sector.
Use of the dEUR for store of value and as a means of payment
The ECB is to be given the right to restrict the use of the dEUR as a store of value. This is one of the main differences compared with euro cash, which may generally be held indefinitely. In addition, a dEUR user may set an offline holding limit. Payment service providers may only price payment services provided using the dEUR subject to certain restrictions. For example, charges for payments with the dEUR may not be higher than payments with digital means of payment. Within the framework of the dEUR Regulation, the dEUR shall not bear interest.
Use of the dEUR outside the euro area
The distribution of the dEUR outside the euro zone is to be permitted only after prior clearance. This approval is to be granted by the ECB for EU member states outside the euro zone. For third countries, even the prior conclusion of a currency agreement is required. If such a currency agreement already exists, the prior inclusion of the dEUR in this agreement is required.
Technical features of the dEUR
It should be possible to use the dEUR for both offline and online payments. In addition, conditional payments are to be possible, in which a payment is not made until a certain condition has been met. There should be technical interoperability with the European digital identity wallet (EUDIW) when it is distributed. Payments with the dEUR are to be executed and effected immediately (“instant”). Mobile device providers must provide adequate and non-discriminatory access to front-end providers for dEUR payments.
Data protection and confidentiality
Payment service providers may process personal data only to a very limited extent when processing offline dEUR payments. There are to be fewer restrictions for online payments with the dEUR. This means that the dEUR is apparently not seen as a cash substitute for online payments. In this respect, there is consistency with the requirements under money laundering law for e-money, which also differentiate between online payments and other payments.
Anti Money Laundering
For the purposes of money laundering prevention, recording obligations are to be created for payment service providers in the future when processing dEUR payments. This will also apply to stationary payments. Corresponding recording obligations do not exist for payments with euro cash. According to the European Commission’s plans, the dEUR will not serve as an electronic surrogate for cash in this respect either.