A digital euro will preserve the freedom of European citizens to use a public means of digital payment, Piero Cipollone, Member of the Executive Board of the European Central Bank (ECB), informed MEPs this week.
Speaking to the Committee on Economic and Monetary Affairs of the European Parliament, Cipollone emphasised the ECB’s viewpoint on the development of a digital euro, stressing that the primary benefit will be that “everyone, regardless of their income, can pay in any situation of daily life”.
In his view, this will mean the digital euro will essentially perform the same function as cash. In an increasingly digitised payments environment, this is essential.
The ECB has noted that mayors of communities in rural and mountainous areas have written to the bank expressing concern about the difficulties residents face in obtaining cash from ATMs, for example.
A digital euro – functioning as a Central Bank Digital Currency (CBDC) for EU member states – has been a long-term objective of the ECB, as Cipollone outlined this week, but as with other continental wide initiatives has been subject to extensive debate in the European Parliament.
Last year, a report published by the European Parliament assessed the potential risks of a CBDC, noting difficult economic conditions many EU countries are facing. The overall conclusion was that, at the time of the report’s publication in May 2023, the time wasn’t right for the introduction of CBDC.
Just under a year later, in his speech to European parliamentarians Cipollone noted that the ECB’s efforts to develop and launch a digital euro are ultimately bound to the MEPs’ legislative timeframe and deliberations.
“Let me assure you that the ECB’s Governing Council will not take any decision about the issuance of a digital euro until the legislative act has been adopted,” he said.
“This constitutes the framework within which the digital euro will be established as legal tender. We will of course remain fully accountable at all times and will keep you continuously and closely informed about the Eurosystem’s progress towards a digital euro, not just at this stage but also after the legislative deliberations have concluded.”
Legislative developments are not the only factors the EBC needs to consider, however. In fact, the bank’s representative outlined four key considerations it is examining in his speech to MEPs.
Firstly, the ECB has noted that it cannot develop and launch its CBDC alone, and will have to consider ‘possible providers’ to assist with creating a platform and infrastructure.
This is something fintech firms with interests in CBDCs may want to keep a close eye on, with an ECB contract seemingly on the table. Cipollone added that at this time, applications for providers of digital euro components and related services are open.
However, he did also stress that “we are not launching any of the development work now” and so guaranteed contracts cannot be set in stone. After all, there is the possibility that MEPs will never approve a digital euro.
He continued: “Instead, we want to establish framework agreements that could be used in the coming years to develop the relevant components if the decision to launch the digital euro is taken.
“We need to be prepared for such an event. Our readiness would be compromised if we started searching for possible suppliers only after that decision is made. However, we are not tying our hands in any way by sourcing potential suppliers now.
“The agreements will be sufficiently flexible to accommodate the legislative deliberations or technological advances. And if we were to take the decision not to launch a digital euro, we would not sign any contracts.”
The EU is a political and economic bloc of 27 member states, spread across the breadth of the continent. As a result, it is home to numerous markets which are in turn home to merchants, banks and consumers.
In this landscape, the ECB is confident that a digital euro will help foster competition. This will require a ‘rulebook’, however, Cipollone elaborated, which the central bank is currently in the process of drafting.
Fintech stakeholders with interests in the digital euro can expect the rulebook to set out a single set of rules, standards and procedures, which would enable transactions via the CBDC to be conducted across the EU’s various borders.
In addition to the rulebook, the bank is also factoring in three core safeguards with the objective “to preserve the role and share of central bank money in payments, not to displace private money”.
These safeguards are that digital euro holdings would not be remunerated and hence would not compete with savings deposits; secondly, there will be limits on the amount of digital euro that can be held by individuals; and lastly, that users could pay with digital euro online without pre funding their wallets, by linking their digital euro account to a payment account with their bank.
“These features show that a digital euro is being designed as a means of payment and not as a form of investment,” Cipollone continued. “And it will preserve the role of intermediaries, contrary to alternative solutions offered by technology firms, which will have no such safeguards.”
The fourth and final design feature the ECB is placing a heavy emphasis on, Cipollone explained as he began to round off his speech, is ensuring consumers benefit from a high-degree of privacy.
Despite its ambitions for digital currency, the bank remains committed to cash, he said, recognising that many consumers continue to value physical money due to the privacy it brings.
In addition, the bank hopes to soothe any consumer concerns around privacy when paying with digital euros by allowing offline payments. Additional caveats of the ‘Eurosystem’ envisioned by the bank have also been set out.
In the ECB’s vision, the Eurosystem will not be able to identify people based on their payments, a minimised set of pseudonymised data will be needed to fulfil tasks such as settlement, and digital euro users will retain control over data used by a payment service provider.
Creation of the digital euro is clearly something the ECB is heavily invested in. As Cipollone explained, the bank sees it as a ‘common European project’ with the goal of protecting the freedoms and right to pay that EU consumers hold.
However, whilst the bank may be fully preparing itself for launch – including seeking out prospective third party platform providers – creation of a digital euro will ultimately depend on how receptive Cipollone’s audience, the MEPs, are to the concept, and how soon they are willing and able to take legislative action.
