European Banking Federation perspective on the digital money ecosystem of the future: „where a retail digital euro, a wholesale CBDC and bank-issued money tokens could all play a role in enabling innovation”

The European Banking Federation (EBF) has published a vision paper on a Digital Euro Ecosystem. The EBF sets forth its perspective on the digital money ecosystem of the future, where a retail digital euro, a wholesale CBDC and bank-issued money tokens could all play a role in enabling innovation, supporting customer needs and ensuring that Europe stays at the forefront of digital finance and the digital economy.

It argues that a retail digital euro could be envisaged in the mix of new tools and solutions to meet evolving payment needs, as long as it adds value to consumers, is appropriately designed, in close cooperation with the private sector, and mitigates ex ante the accompanying risks.

The paper focuses on the retail digital euro – given its prominence in the current debate – but also sets out main principles for the other elements of a digital money ecosystem. The EBF that, should the European authorities move forward with the project, it is most appropriate to issue a retail digital euro as raw material, allowing the industry to develop solutions and fully deploy its innovative potential to deliver future-proof and competitive payment solutions to the European market.

To make this a reality, a retail digital euro should be developed with strong market involvement, in a full and transparent public-private partnership, to ensure that it:

. creates value for end-customers and the economy for existing and new innovative use cases, without crowding out payment services provided by the private sector,

. preserves financial stability and bank funding, thus maintaining European banks’ lending capacity to the economy,

. foresees a robust business model so as to incentivize intermediaries to provide services and innovate based on the digital euro,

. balances design choices to safeguard privacy and enable the fulfilment of compliance requirements (KYC, AML, CFT) while allowing intermediaries to process customers’ payment data based on customers’ consent to provide value-added services, and

. leaves ample room for the private sector to add on solutions and services to better serve customers

Another important consideration in the design is that the digital euro should not bear any interest. This would help that it is perceived as a means of payment, rather than a store of value or an investment, and would also be in line with cash that is not subject to interest remuneration.

The issuance of a retail digital euro would be a major evolution, with wide implications for all economic actors, including the ECB and the Eurosystem itself.

“Decisions made about the digital euro will reverberate through Europe’s financial ecosystem for years to come. The choices made today can support a strong, resilient, innovative and competitive payment ecosystem that enhances European strategic autonomy. However, the right foundations must be in place if a retail digital euro is to come with a  positive risk/benefit ratio. Effective and in-depth cooperation between the public and private sector is needed to ensure an added value for consumers, along with the right design, a robust and sustainable business model underpinning it, and a strong role for the market in designing payment solutions”, said EBF CEO Wim Mijs.

Different forms of digital money should be enabled and developed in the new ecosystem: user needs for domestic and international, retail and wholesale payments, as well as needs arising from the continuous evolution of digital finance will be very broad and diverging. The table below indicates the three developing trends that European banks currently see and highlights the key elements needed to ensure that the underlying objectives are effectively met:

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The European Banking Federation is the voice of the European banking sector, bringing together national banking associations from across Europe.