The digital euro comes at a highly delicate moment for the ECB and eurozone politicians, according to the Financial Times. On the one hand, they are eager to step up preparations for the digital currency over the next few months, with the hope that it could be launched in as little as three years’ time. Yet at the same time, they are also struggling to communicate convincing arguments for the project, which is only increasing the scope for conjecture about the plans.
While China has the most advanced plans for a central bank digital currency among the larger economies, Europe is the furthest ahead among the main western central banks. Christine Lagarde has embraced the project since taking over as ECB president in 2019 from Mario Draghi, who barely mentioned the idea. The Frankfurt-based institution is expected to announce in October that it will move into an implementation phase and start a pilot scheme. Lagarde has said she expects it will be ready to make the final decision of whether to launch a digital euro in 2026 or 2027.
This summer the European Commission will set out legislative proposals setting out some of the key design features of the putative currency, a landmark step towards that goal. Supporters of the project say it would modernise European payments by giving people an electronic alternative to cash that is riskless and universally accepted.
“We need a risk-free asset and the only one that exists is central bank currency,” Fabio Panetta, the ECB executive board member overseeing its digital euro work, told the Financial Times.
Always jealous of the dominant position of the dollar in the international financial system, Europe is eager to find new ways of promoting the euro’s weight globally. It is also wary that China’s digital currency will allow Beijing to expand its role. Like other central banks, the ECB is also concerned that privately controlled digital currencies will gain traction in the financial system as consumers increasingly shun cash.
However, there are mounting questions among consumers, financiers and politicians over exactly what the project actually aims to achieve and whether the potential risks outweigh the benefits. These questions have only grown as the immediate threat from cryptocurrencies has faded along with the decline in the value of bitcoin and other rival forms of money.
The subtleties of central bank currencies are hard for policymakers to explain: many people consider they are already in effect using digital money when they use their contactless payment card or mobile banking app, rather than cash. Some European policymakers fear that a failure to make a clear case for the digital euro will undermine the project before it is even born — that it will come to be seen as a solution that does not quite know what problem it is solving.
“What is the compelling reason for making this reform? This is the big unanswered question,” says Ignazio Angeloni, a former ECB official who is now a part-time professor at the European University Institute in Florence. “I don’t see any big failures in the market that require the public sector to step in and provide a digital euro.”
Taking on Facebook
The idea of creating a digital euro first emerged a few years ago as a defensive response to Facebook’s idea of launching a virtual currency of its own, which policymakers feared could undermine the ECB’s control of the money supply. Since then, the US social media group’s digital currency, known initially as Libra and then Diem, has largely fizzled out. Yet the ECB is still pressing ahead. A key motivation for the ECB is the declining use of cash, which has fallen from 79 per cent of all point-of-sale transactions in the eurozone in 2016 to 59 per cent last year, according to a recent survey by the central bank. The proportion of people in the bloc preferring to pay with cash has fallen from 32 per cent to 22 per cent in the past six years.
Officials say cash acts as an important stabilising force in the financial system by giving people access to a means of payment that is riskless because it is backed by the central bank. People are happy to deposit money at commercial banks in part because they know they can withdraw it as cash at any time, officials say. The digital euro is designed to preserve this role as cash usage declines.
“Digitisation of society means everyone wants to pay digitally,” Panetta says. “But there is no single digital means of payment you can use everywhere in the euro area. Visa or Mastercard are controlled by non-European companies and are widely used, but many shops do not accept them. Even cash is not accepted everywhere.”
Policymakers worry that Europe lacks its own payments champion, leaving it overly reliant on the likes of Visa, Mastercard, PayPal or even Apple, which recently launched savings accounts and a credit card in partnership with Goldman Sachs. There is also a fear that as cash usage falls, people could switch to other means of payment, including stablecoins, which are digital tokens backed by fiat currency, or digital currencies launched by other countries, such as China’s planned digital renminbi.
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Banking 4.0 – „how was the experience for you”
„So many people are coming here to Bucharest, people that I see and interact on linkedin and now I get the change to meet them in person. It was like being to the Football World Cup but this was the World Cup on linkedin in payments and open banking.”
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