The digital euro is moving closer to becoming a reality after a key parliamentary committee backed its launch in an effort to reduce the bloc's reliance on foreign payment systems like Visa (V) and Mastercard (MA). The approval comes as the U.S. moves to ban the creation of a central bank digital currency (CBDC).

Key approval: The European Parliament's Economic and Monetary Affairs Committee on Tuesday voted in favor of establishing the long-awaited digital euro. Lawmakers will negotiate legislation for the new form of payment with the European Council and European Commission next month, targeting final approval by year-end and possible first issuance in 2029. "The digital euro will complement cash, never replace it," said Fernando Navarrete Rojas, an EU lawmaker and rapporteur. "No one should be forced away from cash, and no one should be left without a secure, resilient and genuinely European digital payment option."

Dig deeper: The digital euro would be issued by the European Central Bank. Online payments would be processed through an account-based system, while offline payments would work directly via local storage devices. Privacy would be a major feature, with technologies such as zero-knowledge proofs designed to allow transaction verification without exposing personal data. There would also be a cap on how many digital euros an individual could hold, while businesses won't be allowed to hold the currency for longer than 24 hours. The ECB plans to run a pilot for 12 months in the second half of 2027 using a beta version of the currency.

Global view: But the U.S. has taken a completely different approach. Lawmakers have approved the 21st Century ROAD to Housing Act, which includes a provision banning the Federal Reserve from issuing a CBDC through 2030. The legislation was passed by the Senate and the House, and will head to President Donald Trump's desk to be signed into law. Elsewhere, 146 countries and currency unions are exploring CBDCs with 41 pilot projects ongoing, according to the Atlantic Council. Nigeria, Jamaica and the Bahamas have fully launched their CBDCs, while countries like China, India, Russia ​and Brazil are conducting advanced testing. China's digital yuan is currently the largest CBDC pilot.