The European Central Bank is currently examining the potential usefulness of a digital euro for households and companies and will communicate in October 2023 whether such digital currency will be launched and, if yes, in which form. Next to establishing a permanent access to public money in a more digital world, the digital euro can contribute to a streamlining of existing private digital currencies and payment systems, a more resilient digital payment system, and the preservation of monetary independence. The digital euro can, however, negatively impact the banking system if bank deposits get substituted by digital euro holdings. Research shows that this substitutability leads to an expected decline in profitability of banks which rely relatively much on bank deposits as their funding source. This negative effect can, however, be attenuated by limiting the quantity of digital euros. Moreover, an adequate determination of the supply of digital euros can limit the negative consequences on the banking sector to such extent that the introduction of a digital euro can offer welfare gains.