Fabio Panetta, ECB: „We could launch the digital euro in three or four years”

Interview with Fabio Panetta, Member of the Executive Board of the ECB, conducted by Karl de Meyer from Lex Echos

As the ECB celebrates its 25th anniversary, where do things stand with the digital euro project that you are responsible for?

We are studying the design of the digital euro, its distribution and its impact on the financial sector. There are around 50 people in the team working on this project. We are in regular contact with the European Commission which is due to present a legislative proposal in June. This will provide the regulatory framework for the digital euro. Then in October the Governing Council will decide whether to launch a preparation phase to develop and test the digital euro. This phase could last two or three years. If the Governing Council and the European legislators – Member States and Members of the European Parliament – agree, we could launch the digital euro in three or four years.

Why does the euro area need a central bank digital currency?

To safeguard financial stability, we need to keep central bank money at the heart of the financial system. And we want to offer citizens a risk-free European digital means of payment that they can use free of charge anywhere in the euro area, in shops, online or for payments between individuals. Such a solution doesn’t exist at the moment. The digital euro will also provide a platform for European financial intermediaries to offer innovative payment services across the entire euro area. At present, services developed in one European country are often not available in others. And the European card payments market is dominated by two non-European companies whose cards are not accepted everywhere. Can you imagine a similar situation in the United States? And this situation would be exacerbated by the growth of big techs, which don’t hesitate to use their customers’ personal data to make money.

Some in the political world or from consumer associations are also worried about how the ECB could use the data collected via the digital euro.

The European Central Bank will not have access to personal data.

As for the financial intermediaries that will distribute the digital euro, a balance will need to be found between ensuring data confidentiality and combating money laundering and terrorist financing.

This balance will be determined by the legislator. In current discussions, some want to prioritise confidentiality, while others want to prioritise the fight against illegal activities.

What can we expect from the digital euro?

The simplicity of a payment instrument that is easy to use, available across the entire euro area and which will strengthen the use of our currency. Increased competition in the payments market and innovation based on this financial “raw material” that we will make available to European financial intermediaries. And greater monetary sovereignty.

In concrete terms, what will people be able to do with their digital euro account?

The ECB will ensure that all users benefit from a basic service that enables payments between individuals, retailers and public authorities. Europeans will, for example, be able to use it to pay online or in shops, to send money to their loved ones or to pay their taxes. And banks will be able to offer additional features such as recurring payments, payments based on usage or access to other financial services.

Some commercial banks are clearly concerned that the ECB might take some of their business.

We have been very clear: the ECB would issue the digital euro but would not distribute it. Citizens will not have an account at the ECB or at the national central banks. We do not have any expertise in dealing with customers, and it would not make sense for us to enter into this business. And we are not looking to gain a large market share. We want to build a presence everywhere, but be dominant nowhere. Europeans will know that they always have the option to use the digital euro, but they will only use it for a fraction of their payments. We are not seeking to expand the role of public money, but rather to preserve it, as in its current form – cash – its use is declining. Making the digital euro available as a complement to cash is a natural development in an increasingly digital economy.

Why will digital euro accounts be capped?

Because we don’t want to create tensions for financial intermediaries that could negatively affect the financing of the economy and the transmission of monetary policy. The digital euro would be a means of payment, not a form of investment or savings. We have at times mentioned a ceiling of €3,000. This amount is close to the average gross salary in the euro area and would not cause problems for financial stability. Larger payments will be possible thanks to a link between digital euro accounts and traditional bank accounts.

Just to make it clear: the idea is not for the digital euro to replace cash is it?

Absolutely not. We are working on issuing a new series of high-tech banknotes with a view to preventing counterfeiting and reducing the environmental impact. We will make banknotes available to citizens for as long as there is demand for them. But it’s possible to imagine that one day the digitalisation of the economy could lead to cash becoming marginalised. We cannot run the risk that central bank money is no longer used. That’s why we need a digital euro.

Will these new banknotes that you just mentioned feature well-known European figures?

We want people to relate to the new series of banknotes we are working on. We are considering a number of themes, including European culture, and we will soon consult the wider public. Personally, I would like to see famous Europeans represented on our future banknotes.

The interoperability of the digital euro with other central bank digital currencies is another important topic…

We are already working closely with the central banks of the United States, the United Kingdom, Switzerland, Canada, Japan and Sweden. We are in a preliminary stage where we compare notes on our progress. But interoperability will require more work. For example, while interoperability is desirable, different national rules on confidentiality would make it more challenging.