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Plans for the central bank digital currency (CBDC) are still being refined, but look set to create significant data, governance and interoperability responsibilities for payments firms operating in the EU.
Earlier this month, Piero Cipollone, a member of the European Central Bank’s (ECB) Executive Board called on MEPs to “swiftly” finalise legislation and “accelerate” other preparatory steps for the launch of a digital euro.
Speaking at an event hosted by the Central Bank of Cyprus, Cipollone reaffirmed the ECB’s support for the negotiating position of the Council of the European Union, as published in December.
This position outlines the Council’s vision for a Regulation that would establish the digital euro and authorise its issuance by the ECB.
Cipollone also emphasised the strategic importance of the digital euro in supporting a competitive and resilient European payment system, and for ensuring European economic and currency security.
“The digital euro will deliver tangible benefits to European citizens, merchants and payment service providers alike – it is a win-win for Europe,” he said.
“We strongly believe in public-private partnership when it comes to enhancing the resilience of our payment systems and strengthening our autonomy, and both sides of this partnership are moving forward.”
On the public side, Cipollone said the digital euro project is “advancing well”, both technically and legislatively.
On the technical front, the ECB is continuing its preparations and building the necessary capacity ahead of a possible decision to issue a digital euro.
As part of this work, the ECB is expected to issue a call for expression of interest in March 2026, inviting payment service providers (PSPs) to take part in a 12-month digital euro pilot that will begin in H2 2027.
On the legislative front, Cipollone said the Council’s publication of its negotiating position is a “decisive step” towards an official launch of the digital euro.
“The Council’s position preserves the key pillars of the European Commission’s proposal, including legal tender status, mandatory distribution and acceptance, as well as online and offline functionalities,” he said.
“It also introduces targeted adjustments that address some of the concerns raised by European banks.”
For example, as per the Council’s proposal, only EU-licensed account-serving PSPs would be allowed to distribute the digital euro. This includes banks, payment firms, electronic money institutions (EMIs) and post office giro institutions.
Moreover, the proposed compensation model aims to ensure PSPs remain incentivised by mirroring the economic logic of current card schemes, while removing the burden of third-party scheme fees.
Cipollone said the European Parliament is “actively discussing” the proposal and is expected to reach its own negotiating position in May this year.
Under the assumption that legislators will adopt the Regulation on the establishment of the digital euro in 2026, the ECB is aiming for a potential first issuance in 2029.
The question of holding limits
Although Cipollone confirmed that a future digital euro would be "subject to holding limits”, the nature of these holding limits is yet to be decided.
In a separate interview with Cyprus News Agency, the ECB board member said the holding limits will be finalised by an implementing decision by the Council, following consultation with the ECB and the European Commission.
“It will be a comprehensive, clearly articulated process to ensure that nobody can make a sudden decision to change the holding limit,” he said.
“It will be a very robust process that will have at its centre the reassurance that financial stability will be maintained.”
The Council’s negotiating position details how that process would work in practice.
The Council would set an “overall ceiling” on holding limits, based on a recommendation from the ECB submitted in agreement with the Commission.
However, the Council text makes clear that holding limits are not intended to substitute for supervisory or resolution tools.
“Limits should not be used as a substitute for early intervention or other supervisory measures,” it states. “Neither should such limits be imposed to address situations of individual credit institutions.”
Such matters should instead be handled under existing banking and resolution frameworks.
Holding limits for natural persons and legal persons are likely to differ, though to what extent remains unclear.
As a “general rule”, the Council proposes that holding limits for legal persons should be “limited” to mitigate risks to financial stability, given the ability of legal persons to “swiftly mobilise or concentrate significant amounts of liquid funds”.
The Council suggests that stricter limits may be appropriate for legal persons, provided they can automatically defund their digital euro holdings at regular intervals, such as at the end of each business day.
It may even favour a zero holding limit, meaning merchants can accept digital euros, but the funds must “waterfall” into their commercial bank account instantly, leaving a zero balance in the digital euro wallet overnight.
This framework would also be dynamic, and the holding limits for both legal and natural persons would be reviewed at least every two years.
As part of the review process, the ECB would be required to publish a technical report and submit a new recommendation to the Council ahead of each renewal.
Crucially, all holding limits would be “binding on” and “implemented by” the PSPs distributing the digital euro.
How PSPs would be expected to enforce holding limits
For PSPs, the Council’s text leaves little doubt that enforcement of holding limits would sit within their operational responsibilities.
Distributing PSPs would be required to verify, when onboarding users or during ex-post checks where appropriate, whether these users already hold digital euro payment accounts.
In other words, firms would be required to prevent users from bypassing holding limits by opening multiple wallets across institutions or member states.
To support this task, the ECB and national central banks may support PSPs by establishing a “single access point” of digital euro user identifiers and related holding limits.
That implies the creation of a euro area–wide infrastructure enabling cross-PSP visibility of holdings – a significant data, governance and interoperability undertaking.
Operationally, PSPs would also need to implement automated “waterfall” and “reverse waterfall” functionalities linking digital euro accounts with non-digital euro payment accounts.
Users must be able to initiate payments even where their digital euro balance is insufficient, by automatically mobilising funds from a linked non-digital euro account.
Conversely, where incoming payments exceed the holding limit, excess funds must be automatically transferred out to a non-digital euro account. These mechanisms would apply only where expressly authorised by users.
For merchants and self-employed persons, PSPs would need to support end-of-day “defunding” arrangements, mirroring the emptying of a cash register.
Taken together, the regime points to significant build requirements: real-time holding limit monitoring, cross-border account verification, automated sweeping mechanisms and customer consent management.
For compliance teams, the challenge will not only be ensuring adherence to holding limits, but also embedding those controls in a way that ensures “uninhibited payment functionality” for the digital euro.
