Digital euro could launch in 2029, Lagarde says, as ECB juggles 3.8% inflation and an energy shock

European Central Bank President Christine Lagarde said euro-area inflation could stay above target into the first half of 2027, even as the bank presses ahead with preparations for a digital euro that could see first issuance in 2029.

Speaking at the IMF Annual Meetings on October 17, Lagarde said higher energy costs explain much of September’s 3.8% inflation rate and argued for a measured policy response.

Inflation threatens to complicate the ECB’s economic outlook

Lagarde acknowledged that the energy shock could keep euro-area inflation above the ECB’s target through the first half of 2027. However, she indicated that a measured policy response remained appropriate, rather than reacting too aggressively to price increases driven largely by energy costs.

In her statement to the International Monetary and Financial Committee, Lagarde described an international economy facing considerable uncertainty while noting that the euro area had demonstrated resilience despite difficult conditions.

Energy price movements remain a central concern for policymakers because they affect household purchasing power, business operating costs and broader inflation expectations. If elevated costs spread into wages and other prices, inflation could prove more persistent than initially anticipated.

The ECB must therefore distinguish between temporary supply-side pressures and inflation that becomes embedded across the wider economy. A measured response would allow policymakers to assess incoming economic data while remaining alert to signs that price pressures are becoming more entrenched.

For households and businesses, the implications extend beyond central bank policy. Persistent inflation can reduce disposable income, raise production expenses and complicate investment decisions. The timing and extent of any relief will depend partly on how energy markets develop over the coming months.

Digital Euro targets competition and payment independence

Alongside its monetary policy challenges, the ECB is advancing preparations for a digital version of the euro intended to complement physical cash in everyday transactions.

Lagarde said the central bank was working to provide a public digital payment option that could operate alongside existing private-sector services. She argued that the initiative could encourage innovation and competition in retail payments while supporting Europe’s strategic autonomy.

“The digital euro will further stimulate innovation and competition in retail payments,” Lagarde said in her statement.

The proposed system is designed to give people another way to make payments using central bank money, rather than relying exclusively on commercial bank deposits or private payment providers. Potential uses include purchases in shops, online transactions and person-to-person transfers.

The project does not mean that cash is being phased out. The ECB has consistently presented the proposed digital currency as a complement to banknotes and coins, preserving a public-money option as digital transactions become increasingly common.

However, the launch is not yet guaranteed. According to the ECB’s published project timeline, the institution aims to be ready for a potential first issuance in 2029, assuming the necessary European Union legislation is adopted. The ECB’s Governing Council will decide whether to issue the currency only after the legislative framework is in place.

That distinction matters as policymakers continue to work on technical preparations while European lawmakers negotiate the rules governing the proposed system.

ECB’s tokenised finance strategy extends beyond retail payments

The digital euro initiative is part of a broader effort to adapt central bank money to a financial system increasingly exploring tokenisation and digital settlement.

On September 21, Cointelegraph reported that the Eurosystem had launched Pontes, a system designed to help financial institutions settle wholesale transactions involving tokenised assets using central bank money.

The initiative addresses a different market from the proposed retail currency. While the digital euro is intended for everyday payments, Pontes focuses on financial institutions and the settlement of transactions involving assets represented digitally on financial infrastructure.

Using central bank money for settlement could provide an alternative to relying on privately issued settlement assets, including stablecoins, in certain transaction arrangements.

Pontes is expected to develop beyond its initial core services, with fuller implementation planned by 2028, according to the original report. Its progress highlights the ECB’s interest in maintaining a role for public money as financial markets explore new technologies.

Together, these initiatives point towards a financial ecosystem in which traditional money and digital infrastructure increasingly coexist. Their eventual impact will depend on technical performance, regulatory decisions, market adoption and the ability to work alongside existing payment systems.

For now, the ECB must advance its digital finance agenda while responding to immediate economic pressures. Lagarde’s latest remarks underline both priorities: maintaining price stability amid an energy-driven inflation shock and preparing Europe’s payments infrastructure for a more digital future.