The European Central Bank (ECB) has tackled what it says are "misconceptions" about the proposed digital euro, reaffirming the digital currency would complement not replace cash.

The digital euro would be a form of central bank digital currency (CBDC), a digital currency issued and backed by a central bank, fundamentally different from cryptocurrencies like Bitcoin and Ethereum.

80 per of central banks are currently exploring CBDCs according to research by the Bank for International Settlements.

Plans for the digital euro are still in the early stages, with an announcement expected in June about how the ECB intends to proceed.

The proposed currency is intended to increase EU sovereignty by tackling a perceived reliance on foreign payments providers, as well as to respond to the declining usage of cash in the bloc.

ECB executive board member Fabio Panetta argued against claims the organisation intends to abolish cash and set lower interest rates on the digital euro for monetary policy reasons.

The proposals for a digital euro have experienced significant opposition in Germany, where news magazine Focus wrote that a digital euro would be “catastrophic” for savers.

Panetta also said a digital euro would make the euro more attractive to people living outside Europe and had the potential to increase financial inclusion.

The Italian economist went on to claim the currency will allow the “EU to more effectively combat illegal activities, such as money laundering and the financing of terrorism.”

Panetta did however acknowledge some of the potential challenges of implementation such as ensuring the right to privacy and building trust in the currency among EU citizens.

The news comes after the ECB recently told European Union lawmakers it wants to be able to veto the launch of stablecoins in the EU and take a larger role in their regulation.

Panetta highlighted that the ECB would liaise with the relevant institutions and authorities as it assesses the legal, economic and financial requirements of a digital euro.

The news comes ahead of a public consultation scheduled for 12 October to hear the views of the public and interested stakeholders on the currency.

“We need to make sure that our currency is fit for the future,” said Panetta. “Inaction is not an option.”

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