Legal issues surrounding digital currency

The surge in the value of private cryptocurrencies, particularly crypto-‘currencies’ such as Bitcoin, is fuelling the debate surrounding the development of digital central bank money, known as Central Bank Digital Currency (CBDC). The innovative potential of CBDC can manifest itself either as a cashless equivalent accessible to a broad public, or simply serve to improve interoperability in interbank payments between financial intermediaries.

The project “Legal Issues of a Digital Currency for the Euro Area” focuses on the analysis of digital central bank money under monetary law. The study is based on the “Report on a digital euro” (PDF), which the European Central Bank (ECB) presented in October 2020 and which is to be set out in legal acts in 2023.  

The increasing diversity and parallel existence of means of payment and payment transactions inevitably raise a wide range of legal issues at different regulatory levels (EU/national), each of which simultaneously affects different areas of law. In addition to the private-law framework for digital payment transactions, clarification is needed above all regarding the sovereign control and oversight options arising from the ECB’s concept for the digital euro and from the current investigation and testing phase (2021–23).

In order to better assess the practical legal implications of a digital euro, it is first necessary to distinguish between possible scenarios and functionalities of such a digital currency: on the one hand, the so-called retail model, which involves a cashless cash equivalent accessible to a broad public, and on the other hand, the so-called wholesale approach, whose scope of application is primarily focused on interbank payments. The in-depth legal analysis focuses primarily on the retail approach, which is also preferred by the ECB and envisages a digital euro running parallel to cash, although further details and specific operational mechanisms still raise many open questions of far-reaching significance from both a monetary and a constitutional law perspective. These primarily concern the European Treaties, which govern the multi-tier system of the monetary union (Eurozone), and at the same time have direct implications for national legal systems and thus also for German law.