By Stelios Georgakis, Head, Directorate General Payments, Central Bank of Cyprus 

Cyprus has long stood at the crossroads of continents, cultures and trade routes. Throughout its history, our island has benefited from openness, connectivity and exchange. Our history has taught us an important lesson: openness creates opportunities, while resilience ensures continuity. 

This lesson is particularly relevant today. The digital transformation of our economy is changing the way we communicate, the way we conduct business and increasingly the way we interact. Digital payments have become part of everyday life. Consumers expect payments to be fast, convenient and seamless, whether they are shopping online, paying bills, sharing expenses or making purchases in stores. 

As payment habits evolve, the question naturally arises whether the forms of money we use should evolve as well. This is the context in which the Digital Euro should be viewed. 

So let me explain the rationale behind the Digital Euro and the value it can bring across four distinct pillars. 

Adapting central bank money to a digital world 

Today, our economy is becoming increasingly digital. Consumers are using digital payments more frequently, online commerce continues to expand, and mobile devices are increasingly becoming the preferred payment tool for many citizens. 

At the same time, central bank money remains available to the public only in physical form through banknotes and coins. This creates an important gap. 

Through the Digital Euro, Europeans would be able to pay digitally using central bank money anywhere in the euro area, complementing euro banknotes and coins as well as existing digital private payment solutions, at physical points of sale, online and person to person. This adaptation bridges the gap. 

However, the Digital Euro is not intended to replace cash. Cash remains a vital public good and an essential part of our monetary system. Proof lies in the 31-billion-euro banknotes, worth over €1.6 trillion, and 150 billion euro coins in circulation. The endurance of cash is evident by two important developments.  

  1. The legislative framework that will govern the potential issuance of the digital euro also includes a proposed Regulation on the legal tender status of euro banknotes and coins, which reinforces the concept of legal tender.
  1. The decision of the ECB’s Governing Council to redesign the euro banknotes.

Facilitating payments across Europe 

The second benefit is facilitation. The euro is a common currency shared by more than 360 million Europeans. Yet, despite having a common currency, payment experiences can still differ across countries and payment providers. 

Through its legal tender status, the Digital Euro would provide an additional pan-European means of payment that could be used throughout the euro area.  

Moreover, the possibility of offline functionality would allow payments to be made even when internet connectivity is temporarily unavailable.  

Above all, the Digital Euro is being designed to ensure a high degree of privacy. The Eurosystem would not be able to identify who is making a payment to whom. For online payments, personal data would remain with supervised intermediaries, while offline payments would offer a level of privacy comparable to cash.  

Strengthening resilience and strategic autonomy 

The third benefit, and perhaps the most important one in today’s environment, is strengthening resilience. The Digital Euro can contribute meaningfully to this objective. 

The pandemic, cyber threats, growing geopolitical tensions and increasing global fragmentation have reminded us that resilience cannot be taken for granted.  

This is particularly true for payment systems. As payment systems have become part of Europe’s critical infrastructure, citizens, businesses and governments rely on their functioning continuously, securely and efficiently.  

The possibility of offline payments through the Digital Euro would provide an additional layer of operational resilience protection in situations where connectivity is temporarily unavailable, ensuring continuity of payments.  

But resilience is about more than operational continuity, it is also strategic. 

Today, Europe relies significantly on a limited number of private payment providers and infrastructures headquartered outside Europe. These providers have delivered important benefits and will continue to play a key role in the payments ecosystem.  

Europe must ensure its strategic autonomy through sufficient control over critical payment infrastructures.  A Digital Euro would provide a European public payment infrastructure that would strengthen Europe’s monetary sovereignty and help counterbalance our dependence on non-European payment providers. 

A resilient system is not one that relies on a single solution but one that offers multiple trusted alternatives and can continue operating effectively under any circumstances. The Digital Euro would become an important additional pillar within such a system. 

Supporting innovation and competition 

Notably, strengthening resilience does not come at the expense of innovation.  

The Digital Euro should not be viewed as an alternative to private-sector innovation, but as a foundation upon which innovation can flourish. The public sector provides trust, stability and common standards. The private sector provides innovation, efficiency and customer-focused solutions.  

The Digital Euro can therefore help create new opportunities for banks, payment service providers and fintech companies to develop innovative services for citizens and businesses across Europe. 

It is worth considering where the Digital Euro project stands today. Significant progress has already been made at both European and Eurosystem levels. 

On the legislative front, the proposal for a Digital Euro has now entered the trilogue stage, where the European institutions are working towards agreement on the final legal framework.  

At the same time, the Eurosystem is advancing its technical preparations. The current phase of the project focuses on further developing the Digital Euro rulebook, developing the service platform, and conducting extensive testing with market participants within the pilot exercise.  

Cyprus’ contribution to the Digital Euro 

Cyprus is actively participating in this important stage of the project. Earlier this year, the Bank of Cyprus and JCC Payment Systems Ltd were selected by the Eurosystem to participate in the Digital Euro pilot activities. 

This is a particularly positive development for our country. It ensures that the Cypriot payments ecosystem will contribute directly to testing and shaping future Digital Euro solutions and that the experience of our market will be reflected in the ongoing work at European level. This recognition is not incidental; Cyprus is among the most digitally active payments markets in the euro area.  

The participation of two Cypriot payment service providers demonstrates both the expertise that exists within our financial sector and the willingness of Cyprus to contribute actively to one of Europe’s most important payments initiatives. 

Conclusion 

The Digital Euro is ultimately about ensuring that Europe’s money remains fit for the digital age. It would adapt central bank money to changing payment habits. It would facilitate payments throughout the euro area. And it would strengthen the resilience, competitiveness and strategic autonomy of Europe’s payments ecosystem.