Merchants in the euro area may soon be required to accept the digital euro as legal tender, according to a recent development in the world of finance.

The move is said to be in response to the increasing demand for a cashless payment system, which has been fueled by the COVID-19 pandemic.

The proposal, which was presented to finance ministers in a paper seen by CoinDesk, suggests that giving the central bank digital currency (CBDC) the same status as banknotes and coins would mean payments legally discharge obligations to pay.

The paper goes on to state that with mandatory acceptance at full face value, the CBDC could potentially increase its network effects and affect its distribution.

However, the paper also raises the question of whether exemptions should be considered to ensure proportional application, balancing the principles of contractual freedom and mandatory acceptance.

This suggests that the implementation of the digital euro as legal tender may not be straightforward, and may require careful consideration and negotiation among finance ministers.

This is not the first time that the issue of the digital euro has been discussed. In a previous discussion in January, ministers suggested that the digital euro should not be programmable, as giving the ability to limit how a payment can be used by the recipient would impair money’s fungible status.

The European Central Bank is set to formally decide whether to issue its currency in digital format in the fall. Officials are currently working on technical details such as which potential uses to prioritize. EU national governments will also be involved in agreeing any legislation needed to underpin the CBDC.

Last week, the European Commission’s Mairead McGuinness confirmed that a bill due shortly will examine anti-money laundering rules and compensation for those distributing the currency, in addition to legal tender status.

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