The digitalization of economies has opened new avenues for financial services, prompting central banks worldwide to explore Central Bank Digital Currencies (CBDCs). Among these, the digital euro has emerged as a promising endeavour for the European Union (EU) though the digital euro’s potential, raise key considerations regarding the related true opportunities to address, and challenges surrounding its implementation.
The Eurosystem’s investigation into the digital euro aims to analyse and conclude on essential aspects of its scope, design, and distribution. While no irreversible commitment has been made yet, the overarching objective is to assess whether a digital euro could meet the needs of European citizens and bolster the digitalization of the European economy while preserving financial stability and monetary policy integrity.
Digital payment processes, coupled with declining cash usage, suggest creating an alternative to maintain the co-existence of central bank and commercial bank money in retail payments. In addition, a digital euro could counter some dominance of private sector actors in payment markets, providing a secure and efficient alternative in the EU. Moreover, it could address challenges posed by private digital currencies possibly issued by others among which BigTechs.
Yet such a project requires gathering some key success factors.
Privacy stands as a vital feature of a digital euro although Anti-money laundering and combating terrorism require restricting full anonymity. Collaboration with the financial industry is crucial to devise robust front-end payment solutions while upholding privacy standards.
The ability of the digital euro to contribute to deepening financial inclusion in the EU in the context of ever digitalising economies is also an essential outcome.
The design of the digital euro should encompass appropriate holding limits and tiered remuneration in order to discourage excessive holdings for the sake of financial stability and maintaining the existing role of financial intermediaries.
It is also essential to ensure that the digital euro complements existing payment solutions without disrupting financial intermediaries.
Some consider also that a well-coordinated digital euro could enhance cross-border payments, improving the efficiency of international transactions without undermining global financial stability.
Finally, the main challenge will rest on the appropriate definition of the expected added value of the digital euro, which should balance various possible priorities among, which cash replacement, a possible focus on cross-border payments notably within the EU, and the support of innovation enabling new payment use-cases.
It worth bearing in mind that each of these priorities presents distinct implications in terms of privacy, technical infrastructure, regulatory compliance, time-to-market, and impact on financial stability.
Extracted from the main Eurofi publications (Regulatory Updates, Views Magazines and Conference Summaries)
Panel discussion summaries
Eurofi Views Magazine chapters
Harald Waiglein - Federal Ministry of Finance, Austria | Fiona Van Echelpoel - European Central Bank (ECB) | Philippe Bordenave - BNP Paribas | José Antonio Álvarez Álvarez - Banco Santander | Manuel Galarza Pont - CaixaBank
Burkhard Balz - Deutsche Bundesbank | Alexandra jour-Schroeder - European Commission | Mindaugas Liutvinskas - Vice Minister of Finance of the Republic of Lithuania | Karolin Schriever - Deutscher Sparkassen - und Giroverband (DSGV) | Rafael Marquez - American Express | Pablo Zalba - Deloitte
Alban Aucoin - Crédit Agricole Group
Evelien Witlox - European Central Bank (ECB) | Burkhard Balz - Deutsche Bundesbank | Tim Hermans - National Bank of Belgium | Piero Cipollone - Banca d’Italia | Charlotte Hogg - Visa Europe | Santiago Fernández de Lis - Banco Bilbao Vizcaya Argentaria (BBVA)
Burkhard Balz - Deutsche Bundesbank | Ulrich Bindseil - European Central Bank | Denis Beau - Banque de France | Ondřej Kovařík - European Parliament | Monica Lopez-Monis Gallego - Banco Santander | Teunis Brosens - ING Group
Ulrich Bindseil - European Central Bank | Denis Beau - Banque de France | Marcel Haag - European Commission | Anna Breman - Sveriges Riksbank | Marion Rouso - La Banque Postale | Kristine Braden - Citigroup Global Markets Europe AG | Alejandra Kindelán Oteyza - Grupo Santander