The European Central Bank’s strategy for achieving payments autonomy centers on a “digital euro,” which would effectively replace physical cash in the eurozone. But the digital euro’s impact would be limited to retail payments and would not substantially increase the euro’s share of international transactions or foreign reserves.

LONDON – Europe has high hopes for the “digital euro” now in development. Cash has long served as the ultimate anchor for commercial bank deposits – direct claims on the central bank – thereby underpinning trust in the financial system as whole. In the digital age, when cash’s share of even small retail transactions is dwindling fast, the European Central Bank hopes that the digital euro can fill that role.