Recent geopolitical developments have intensified the debate on the need for a digital euro and its role in reinforcing the strategic autonomy of the euro area in the realm of digital payments. Developments in the global economy, trade wars, and political decisions on economic matters have significantly heightened concerns regarding the euro area's dependence on card payment systems largely controlled by a limited number of non-European companies (in Latvia, Visa and MasterCard remain the dominant players in everyday transactions). Card payments have become the most prevalent method for in-person transactions, including in Latvia, with their usage following an upward path. Moreover, 13 out of the 20 euro area Member States lack local alternatives, while in 7 other Member States, existing solutions are unable to effectively compete with global players and extend services beyond national borders.
In the card payment market segment, including smartphone payments, where a handful of dominant players control the landscape and competition remains scarce, society and merchants find themselves in a disadvantageous position, facing both higher costs and limited choices. For example, merchant fees for accepting card payments doubled between 2018 and 2022. It disproportionately burdens small merchants whose digital payment acceptance fees can be as much as three to four times higher than those levied on larger retail chains.
The introduction of the digital euro would foster competition in the digital payments market, providing every euro area resident and merchant with a simple and efficient option for making and receiving digital payments. The digital euro would serve as a viable alternative to existing payment solutions, and combined with regulated fee caps, it would empower merchants by improving their position in terms of payment acceptance costs. The use of the digital euro by the public would be free of charge, fully embodying the principle of public good that applies to state-issued currency.
The digital euro would also open up new opportunities for European private payment service providers, enabling them to expand their services across the entire euro area. The European Commission's regulation for the digital euro seeks to grant it legal tender status, ensuring its widespread acceptance at points of sale. The legal tender status, combined with the free use of acceptance standards, would facilitate the establishment of a cohesive European payment network, effectively overcoming current obstacles faced by private providers in service development and deployment. This would offer end-users across the euro area a broader array of payment solutions.
This project would not only strengthen the European payments market but also enhance payment security and resilience in emergencies. By introducing the digital euro, the Eurosystem (consisting of the European Central Bank (ECB) and the national central banks of the euro area) seeks to provide the public with a reliable alternative to cash during times of crisis. The security of the digital euro is integrated both into every aspect of the payment system's development and core functionalities of digital euro. For example, the digital euro would be fully functional even without an internet connection. Moreover, if a payment service provider were to become unavailable, users could easily and securely transfer their access to another service provider.
Despite the Eurosystem's vision, the success of the digital euro's implementation will ultimately depend on how willing the public is to embrace and integrate it into their everyday transactions. While the digital euro holds the potential to offer a secure and efficient alternative to existing payment solutions, public opinion remains mixed and uncertain. A survey commissioned by Latvijas Banka and conducted in February 2025 reveals that only 26% of Latvia's population intend to use the digital euro, with 32% remaining undecided and 42% stating they would not use it.
The main reasons cited by those planning to use the digital euro include its convenience, free usage, innovation, security, and a desire to explore its potential. Conversely, the key deterrents cited include insufficient information, distrust in technology, a preference for maintaining cash as the primary form of payment, and satisfaction with the current payment solutions.
Therefore, for the digital euro to gain widespread adoption as a means of payment, it is crucial to raise public awareness and understanding of its advantages, as well as the objectives behind its implementation. This will be particularly challenging in Latvia, as we are already reaping, or will soon reap, many of the advantages that the digital euro will offer – far ahead of other euro area Member States. This is made possible by the development of instant payment infrastructure.
The implementation of the digital euro is a multifaceted and sensitive process, given that it touches on one of the most fundamental aspects of daily life – our money and everyday transactions. Consequently, the project is being implemented in a phased approach, with each phase spanning two years. Each phase is structured with clearly defined tasks and objectives, and only upon their successful completion the Governing Council of the ECB assesses the progress of the project and decides whether to proceed with the next phase.
The technical development of the digital euro within the Eurosystem and the formulation of the legal framework at the European Union (EU) level are advancing in tandem. The final decision on the issuance of the digital euro can only be made once the relevant regulation has been approved in the EU. The text of the regulation is presently under development, and any modifications to its content can also have a profound impact on the Eurosystem's proposal. Therefore, it is essential for the EU institutions to expedite the approval of the regulation, paving the way for the development and review of the final digital euro proposal by the Governing Council of the ECB. However, there is still a long road ahead before individuals and businesses can experience the digital euro in practice, a process that will unfold over the course of several years.