Q4: Would the digital euro replace cash?
The European Central Bank answers:We answer them:No. The digital euro would complement cash, not replace it. The digital euro would exist alongside cash in response to people’s growing preference to pay digitally in a fast and secure way. Cash would continue to be legal tender, and it would remain in co-existence with the digital euro and any private electronic means of payment currently in use.
The ongoing euro banknote redesign, with improved security features, demonstrates that the ECB is committed to the future of cash. The ECB welcomes the European Commission’s Single Currency Package, which preserves people’s freedom of choice between cash and digital euro when paying with central bank money.
While the ECB may not intend to replace cash with the digital euro, the extent to which people and businesses will continue to use physical cash once the digital euro is available is not within the ECB’s control. There are several reasons why the digital euro might replace cash at least in practice: First, since the advent of digital payments, every new method introduced has eroded the use of physical cash. Second, all European businesses will be forced to accept the digital euro. Third, the costs of operating the system are partially government-subsidized and thus likely lower than other digital payment methods. Fourth, the digital euro (like cash) is backed directly by the central bank. It seems logical that the digital euro would accelerate the migration away from cash more than the introduction of comparable other digital payment methods has done in the past. The answer by the ECB is clearly downplaying those replacement risks.