By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel on Wednesday said the digital euro should become a core element of payments in Europe, arguing that it would modernize central bank money, support European sovereignty and help Europe compete in digital finance.

Nagel, who heads the Deutsche Bundesbank, said in a video message to the International Bankers Forum that the digital euro was not an end in itself, but a response to three developments: the digitalization of everyday payments, the increased importance of European sovereignty and global competition in digital finance.

Cash remained important, but payment habits were changing fundamentally, Nagel said. In 2024, only two-fifths of the value of point-of-sale payments in the Eurozone were still made in cash, down from almost half in 2019, he said.

The value share of online purchases doubled over the same period to 36% from 18%, while the share of Eurozone retailers not accepting cash tripled between 2021 and 2024 to 12%, he said.

The digital euro would not represent a rejection of cash, Nagel said.

“It is a digital complement,” he said. “It is about further developing central bank money in an increasingly digital world.”

Central bank money remained the anchor of the monetary system, and the digital euro would ensure that it remained available for everyday use not only as cash but also in digital form, he said.

Like cash, the digital euro would be usable as legal tender throughout the Eurozone and would be designed for universal acceptance, he said.

Nagel said the Eurosystem would provide public infrastructure for the digital euro, while banks and payment service providers would continue to play a central role as the interface with customers.

“The digital euro should therefore not be developed against the financial industry, but with it,” he said.

The digital euro should not create a parallel world, but fit into the existing financial system, he said.

It could also provide a basis for new business opportunities, including conditional payments that are triggered automatically when specific conditions are met, he said.

At the same time, the digital euro would have to be designed in a way that preserved financial stability and did not impair bank lending, Nagel said.

Important safeguards would include holding limits and the absence of remuneration, he said.

Higher-value payments should still be possible through a waterfall mechanism, under which any amount above the holding limit would be transferred automatically from the bank account linked to the wallet, he said.

“The digital euro should serve as a means of payment — not as a form of investment and not as a replacement for bank deposits,” he said.

European payments were heavily dependent on non-European providers in important segments, Nagel said.

More than two-thirds of card payments in the Eurozone are currently processed via non-European systems, while 13 of the 21 Eurozone countries have no national payment solutions and depend entirely on international payment providers, he said.

This did not mean that international providers active in Europe offered poor services, he said. Many of them were convenient, reliable and established among users.

“But convenience must not come at the expense of sovereignty,” Nagel said.

Europe needed to remain capable of acting even in a crisis, including in payments, he said.

The digital euro would not be about isolation or autarky, and would not represent a vote of no confidence in private providers, he said.

Rather, it would be an autonomous European infrastructure usable throughout the Eurozone, under European control and supportive of private innovation, he said.

Privacy and data protection also had to be central to the design of the digital euro, Nagel said.

The Eurosystem would see only holdings and transaction patterns of pseudonymized users, and would not be able to assign payment data to a specific person or create individual payment profiles, he said.

The offline mode would offer a level of privacy almost comparable to cash, since payments could be made directly from one device to another without going through central systems, he said.

The digital euro was not the only answer to changes in digital finance, but one important element in a broader European payments strategy, Nagel said.

The euro’s position as the world’s second-most important currency “cannot be taken for granted,” he said.

Trade, financial markets and value chains were becoming increasingly digital, meaning that the euro’s infrastructure also had to evolve, he said.

Nagel said new digital solutions were emerging globally, including tokenized market environments and privately issued forms of digital money such as stablecoins.

Stablecoins could enable new forms of payment and settlement, but also raised questions about regulation, financial stability and monetary sovereignty, he said.

The Eurosystem was also working to make central bank money usable in new distributed-ledger-technology-based market environments, Nagel said.

Project Pontes would create a solution for settling large-value payments and securities transactions in central bank money, he said.

Unlike the digital euro, which was aimed at everyday payments, Pontes would involve tokenized central bank money for wholesale use, he said.

“The digital euro is not a replacement for cash and not a counter-project to the financial industry,” Nagel said. “It is a European public basic infrastructure for the digital age — sovereign and open to private innovation.”