As bronzed Eurocrats return from summer holidays to face the usual September onslaught of lobbyists in Brussels, this year they’ll find an unlikely interest group waiting at their doors: the European Central Bank.

The hot topic on the ECB’s agenda is the digital euro — a proposed electronic version of the physical euro that has banks and right-leaning politicians fuming.

The debate is heating up as European Union member countries try to reach a final agreement on how the digital euro should work by the end of this year. But the European Parliament also needs to approve it, with serious talks likely to heat up over the fall.

At its core, the digital euro is a new payment method with an undertone of geopolitics. Without virtual banknotes and coins, the ECB fears its monetary authority will disintegrate in a digital age where cash payments are declining. It’s pushing the digital euro because it argues that sitting idle makes the European Union too reliant on U.S. credit card giants Mastercard and Visa to handle cross-border transactions. Worse yet, data-hungry tech companies such as Meta, Apple or X could try for a piece of the payments pie, leaving Europe at the mercy of foreign interests.

The arrival of United States President Donald Trump has only heightened anxieties, especially since the White House has shown little restraint in pressuring companies to achieve his goals. Trump also signed the Genius Act, which aims to turbocharge certain crypto assets called stablecoins.

Stablecoins differ from wildly fluctuating cryptocurrencies like Bitcoin because their value is pegged to a fiat currency, in most cases the U.S. dollar. This makes stablecoins far more … well, stable, than other cryptocurrencies, meaning they represent a genuine threat to old-fashioned currencies like the euro — particularly for cross-border payments.

The pressure is on. The ECB is ramping up its lobbying program, participating in a series of seminars for members of the European Parliament in September — followed by a visit from the central bank’s chief cheerleader for the project, Piero Cipollone. ECB executives will also have the chance to champion the digital euro later this month when EU finance ministers and central bankers gather in Copenhagen.

But for once, EU finance ministers are not the ECB’s main concern; its chief target is a Spaniard by the name of Fernando Navarrete. A central banker-turned-center-right EU lawmaker, Navarrete is in charge of negotiating the digital euro’s legal framework through the Parliament. The problem for the ECB is that Navarrete is seriously skeptical.

Here are four things you need to know about the looming fight over the digital euro.

What is the digital euro?

Simply put, the digital euro is a virtual extension of the EU’s single currency. 

The concept of central bank digital currencies, or CBDC, has existed for many years, although it has rarely made it past the conceptual phase. The ECB got serious about creating one in 2019 after Facebook owner Meta tried and failed to introduce its own global virtual currency for its 3 billion users in the form of a stablecoin.

The digital euro would be backed by the ECB and would hold the same value as real money, complementing cash and cards. People would use the virtual money to pay for goods and services, or lend it to friends. The difference is that digital euros would most likely be stored on a wallet-like application on smartphones. The ECB would also keep its own record of the virtual money people hold, making it impossible to lose.

How is that different from today’s digital payments?

The big difference is that the digital euro would be central bank-issued legal digital tender that, in theory, doesn’t require a commercial bank’s involvement — which is quite revolutionary.

Money held in a commercial bank account is not sitting in a vault waiting for you to claim it. Most of it has actually been lent out in the form of mortgages and other types of loans, with only a small portion of it sitting in cash reserves. The money you think you have in your bank account isn’t actually there; it’s really just the bank’s promise to pay you that money, should you decide to claim it. But banks are counting on customers not claiming it — at least not all at once. Without safeguards in place, a bank would collapse if all its customers demanded all their cash at once.

The proposed digital euro is entirely different. It is sitting in a (digital) vault waiting for you. No one else will have borrowed it to buy a house or start a business. One digital euro in your digital wallet would be as legally real as one physical euro in your pocket. And because the ECB would have a record of how many digital euros you possess, this makes it even more secure than physical cash — which can more easily be stolen, lost or destroyed.

Payments by digital euro would therefore (theoretically) be simpler than today’s digital payments. Rather than your bank having to settle a mind-bendingly complex and behind-the-scenes transaction with the vendor’s bank using third-party payments companies (like Visa or Mastercard), you would simply send the digital euros from your digital wallet directly to the vendor’s digital wallet. It would be just like handing over cash. On paper, no banks or payment companies need be involved — although in practice, they would need to participate in the digital euro’s distribution.

In other words, a digital euro would break the private sector’s hold on digital payments.

Where is the proposal at?

Stuck in Brussels. Although the digital euro is the ECB’s baby, EU governments and members of the European Parliament are the ones tasked with putting the project’s legislative framework together. That has blended politics into the debate, muddying the waters from the perspective of technocrats. MEPs, for example, have heeded concerns that governments could use the digital euro for snooping on people’s payments — a notion the ECB has trashed. 

Many within the banking and financial industry, meanwhile, have branded the project “a solution looking for a problem” amid fears they’ll foot the bill for implementing the infrastructure needed to run the digital euro. Its introduction could also stifle future innovation by dictating the future direction of the EU’s payment industry, they argue.

Industry lobbying has paid off. Navarrete has called the digital euro “a last resort” and “a nuclear threat” that will force the industry to develop a cross-border payment system before the bill is ready.

Will the ECB succeed?

The Parliament is only one beast the ECB has to contend with. Government officials in the Council of the EU, which represents the various member countries of the bloc, aim to finalize their negotiating position on the digital euro bill by year’s end. Their involvement has the ECB on edge as well — especially as the Council wants to have the last say on how many digital euros a citizen can hold at any one time, to placate lender fears of a bank run.

Another ongoing debate is whether banks should get a cut for distributing digital euros and ensuring their payment rails accept and profit from transactions with virtual banknotes at the cashier’s till.

Privacy-minded governments, such as Germany and the Netherlands, want the highest safeguards against payment surveillance; while the Belgian government has made it clear that it will not support the digital euro if it can’t be used offline.

Central bankers have long relied on lofty speeches and fireside chats to influence policymaking. But that hasn’t worked with the digital euro. And with Trump back in office, the ECB has been forced to climb down from its ivory tower and enter the political ring.

All that presages a fierce political debate over the coming months — though the Parliament doesn’t plan to reach a final position until next May, meaning it’s unlikely you’ll be able to actually start buying things with digital euros until at least 2028.