Different aspects of our lives are increasingly influenced by digital technologies, and our wallets are no exception. In the European Union and its Member States, digital money is available in the form of bank deposits, electronic transfers, card payments and mobile payments.
Recent developments such as a desire to increase the EU’s strategic autonomy, a decline in the use of cash, and a possible threat to the euro by the potential widespread use of non-euro denominated private digital currencies (like cryptocurrencies) have led the European Central Bank (ECB) to explore the introduction of a digital euro.
Two years after the launch of the investigation for a digital euro for retail use, we are approaching a crucial point.
First, the European Commission will release, over the summer, a proposal for legislation to provide the legal basis for the central bank’s digital euro plans – to be debated and finalised by the European Parliament and the EU Member States.
Secondly, the ECB is expected, in the autumn, to decide whether to move to a realisation phase of the project. Once the legal framework is in place and the design and technical set-up have been worked out, the ECB may decide to issue a digital euro, which could be available to the public in 2027.
However, many key aspects remain debatable. Is a retail digital euro the most efficient way to a competitive European retail payments market? How to ensure that bank funding is not endangered as consumer deposits flow into digital euro wallets, making it harder for banks to lend to businesses and individuals? What safeguards will be put in place to avoid digital bank runs in times of crisis? And how would a retail digital euro fulfil the different policy goals put forward by the ECB, ranging from strategic autonomy to an alternative to payment solutions, a monetary anchor, and a tool to financial inclusion?
There are also questions about who should do what. We believe the private sector has the experience and expertise to design the payment solutions to deliver the digital euro to the public. The ECB is responsible for ensuring the euro remains the monetary anchor of the eurozone and that alternative forms of private money do not threaten the usability of the single currency.
The main challenge for decision-makers will be to prove that a retail digital euro is the best way to ensure this monetary anchor, while demonstrating its added value for citizens and businesses in an already successful European payments landscape.
Legislation will be key, not only to establish the legal basis and the central aspects of a digital euro, but also to ensure a thorough democratic and public debate takes place. An endeavour of this magnitude deserves time, attention and deep analysis on its pros and cons.
So, is the digital euro the logical next step? The answer depends on its form, design, concrete added value and competitive features.
A digital euro is, first and foremost, a political project that has to be anchored in the realities of the European payments market, and provide understandable, tangible benefits to citizens and businesses. It must look to the future and not duplicate what already exists.