As cash dies, European leaders chase digital payments independence from the US

BRUSSELS (CN) — The 20-euro note has been sitting in Colette Vandermael’s wallet for three weeks. The Brussels office worker pulled it out at the Flagey market, then paused and tapped her phone instead. She can’t remember the last time she actually spent cash. Like millions across Europe, Vandermael has drifted into an almost entirely digital payment world — one quietly controlled by companies an ocean away.

Cash is disappearing across Europe at a pace unthinkable a few years ago. In 2016, nearly 80% of transactions used physical money; today, just about 50% do, according to European Central Bank (ECB) data.

The 30-point drop sped up during the Covid-19 pandemic, when lockdowns and hygiene concerns pushed millions toward digital payments. While 62% of Europeans consider it important to keep cash as an option, most now reach for cards or phones instead.

The shift has created a new vulnerability for European policymakers. As cash use declines, Europeans are increasingly dependent on U.S.-run systems. International card schemes such as Visa and Mastercard now process 61% of eurozone card transactions, and 13 of the eurozone’s 20 countries have no domestic digital payment alternatives.

“At the present, with the core of our digital payment system provided by non-European providers, our capacity to act swiftly and independently, particularly in times of crisis, could be constrained,” Piero Cipollone, a member of the ECB’s governing board, told European lawmakers last week.

European officials are fast-tracking plans for a digital euro — an electronic version of cash that would let people pay without relying on foreign firms. But the project faces political resistance, bank opposition and shaky public support.

The ECB hopes a digital euro could capture 40% of the payment market by 2028. Yet with banks fearing lost revenue and many Europeans unsure they’d use it, success is uncertain.

The stakes are high as Europe reckons with its reliance on U.S.-controlled systems — part of a broader effort to cut dependence on the United States in critical areas from semiconductors to defense.

The battle over Europe’s digital future is underway. While the U.S. under Trump backs private stablecoins, Europe is betting on a government-run digital euro that would give central banks direct control over transactions. The clash has turned payment sovereignty into a test of state control versus market innovation.

If the digital euro falters and private options remain fragmented, Europe could be locked into U.S. systems as cash vanishes. But pushing ahead with a flawed design could spark the very instability the ECB hopes to avoid.

The digital euro would function as an electronic version of cash for an increasingly cashless society: It would allow users to make payments directly through digital wallets without relying on private payment networks. Unlike commercial payment systems, it would be issued and controlled by European authorities rather than foreign corporations.

The system would even work offline, with users able to transfer money by touching phones together without internet access.

The key difference is that today’s digital payments move private bank money through foreign networks, while a digital euro would move central bank money through European infrastructure — giving citizens the same sovereignty over digital transactions they now have only with cash.

Europe’s fragmented payment landscape underscores the need. National systems often don’t work across borders, leaving Europeans reliant on Visa and Mastercard for cross-border payments.

Despite this fragmentation, critics argue that existing payment systems work adequately. Consumer understanding remains a major hurdle, with banking regulators noting that ordinary users “don’t understand the difference between electronic payments and digital euro.”

“I don’t really see the point,” says Ida Bonina, rushing to buy discounted strawberries as vendors pack up their tents at the end of market day in Brussels’ Flagey. “My phone already works everywhere. Why would I want another app from the government?”

She’s not alone. In the European Parliament, center-right Fernando Navarrete — in charge of the project in the Parliament —has emerged as a particularly strong critic: “Why are we discussing something citizens are not asking for?” the Spanish lawmaker asks in a 27-page critique released last week. “Is it really trying to solve any real demand from EU citizens or … the anxiety of some central banks about their ‘business model’?”

The digital euro also faces significant implementation challenges. To prevent bank runs, the ECB plans to impose strict limits on the amount of digital euro individuals can hold, forcing excess amounts back into traditional bank accounts through an automated system that critics say introduces complexity and potential failure points.

To test these concerns, regulators have tested limits ranging from €300 to €3,000 and found minimal impact on bank stability, the European Banking Authority — the regulatory oversight body for the EU banking sector — told Courthouse News.

The ECB has emphasized that the digital euro would complement, not replace, cash and bank deposits, with privacy protections that officials say would exceed those of current payment systems.

The European Commission, the EU’s executive arm, proposed a legal framework in June 2023, but negotiations between Parliament and national governments remain stalled, threatening more delays. As Cipollone told lawmakers, “money is trust,” and public confidence is key to any digital currency’s success.

The ECB expects development to last between two and three years after legislation passes, meaning a realistic launch window is between 2027 and 2029.

Banks fear the digital euro could cut into a key revenue stream, with fees and commissions making up about 30% of their net operating income. At the ECB’s projected scale — 40% of the payment market by 2028 — it could absorb more than a third of card transactions.

Public enthusiasm, however, trails far behind. One survey found a third of eurozone residents willing to use a digital euro, while another showed 56% unsure they’d ever adopt it.

According to reports, the eurozone’s central bank plans for the digital euro to have the capacity to capture up to 40% of the payment market by 2028. Yet public enthusiasm lags far behind these ambitions: while one survey showed one-third of eurozone residents willing to use a digital euro, another found 56% unsure they would ever adopt it.

European officials admit U.S. legislation has made the case for a digital euro “more salient” and “more relevant,” though they say it hasn’t altered their technical timeline. ECB officials also stressed no decision has been made on the technology platform, calling recent media reports about blockchain premature.

The project took on new urgency after Trump signed the GENIUS Act in July, creating a regulatory framework for dollar-backed digital currencies known as stablecoins. Unlike volatile cryptocurrencies like Bitcoin, stablecoins are pegged to assets such as the U.S. dollar to maintain their value stability for everyday payments.

While stablecoin adoption in Europe remains limited so far, European officials worry the U.S. regulatory framework could accelerate their use. Still, “Europe’s deeper concern is that widespread use of dollar stablecoins could weaken the transmission of its own monetary policy, effectively reducing the ECB’s control over the eurozone economy,” said Alisha Chhangani, assistant director of the Atlantic Council’s GeoEconomics Center.

Chhangani calls this Europe’s “global euro moment” — a chance to use digital technology to strengthen the euro’s role and break free from U.S.-dominated payment infrastructure.

At the retail level, Europe faces stiff competition from U.S.-dominated payment networks. The technical hurdle is steep: integrating a new digital currency into cards, mobile wallets, QR codes and cash systems.

Building such alternatives is a massive investment — the European Payments Initiative, a previous attempt at a pan-European system, projected costs of several billion euros before shrinking to just France and Germany.

But the bigger obstacle may be adoption rather than technology. Without strong incentives for merchants and consumers, the digital euro risks limited use.

European officials acknowledge they are playing catch-up. The question is whether Europe can move quickly enough to maintain meaningful control over its financial future while its citizens continue their rapid shift away from cash toward digital payments that foreign companies control.

However, once retail infrastructure is established and the technology proves reliable, the ECB could extend the digital euro into wholesale applications, which would be particularly valuable as capital markets increasingly adopt tokenization.

If successful, the digital euro could inspire similar sovereignty projects worldwide. But Europe faces a more immediate test: whether it can build something compelling enough to wean itself off the American systems it already depends on, or whether its citizens will simply ignore yet another government digital initiative they never asked for.

Courthouse News’ reporter Yuval Molina is based in Brussels, Belgium.