Digital euro: A good idea, but please get it right!

The discussion surrounding the digital euro is strategically important to Europe. On Dec. 12, the EU finance ministers are aiming to agree on a general approach regarding the dossier. This sets out the European Council’s official position and thus represents a major political milestone for the European Council ahead of the trilogue negotiations. We want to be sure that, in this process, the project will be subject to critical analysis that is objective and nuanced and takes account of the long-term interests of Europe and its people.

We do not want the debate to fundamentally call the digital euro into question but rather to refine the specific details in such a way that opportunities can be seized.

We regard the following points as particularly important:

• maintaining European sovereignty at the customer interface;
• avoiding a parallel infrastructure that inhibits innovation; and
• safeguarding the stability of the financial markets by imposing clear holding limits.

We do not want the debate to fundamentally call the digital euro into question but rather to refine the specific details in such a way that opportunities can be seized and, at the same time, risks can be avoided.

Opportunities of the digital euro: 

1. European resilience and sovereignty in payments processing: as a public-sector means of payment that is accepted across Europe, the digital euro can reduce reliance on non-European card systems and big-tech wallets, provided that a firmly European design is adopted and it is embedded in the existing structures of banks and savings banks and can thus be directly linked to customers’ existing accounts.
2. Supplement to cash and private-sector digital payments: as a central bank digital currency, the digital euro can offer an additional, state-backed payment option, especially when it is held in a digital wallet and can also be used for e-commerce use cases (a compromise proposed by the European Parliament’s main rapporteur for the digital euro, Fernando Navarrete). This would further strengthen people’s freedom of choice in the payment sphere.
3. Catalyst for innovation in the European market: if integrated into banking apps and designed in accordance with the compromises proposed by Navarrete (see point 2), the digital euro can promote innovation in retail payments, support new European payment ecosystems, and simplify cross-border payments.

The burden of investment and the risk resulting from introducing the digital euro will be disproportionately borne by banks and savings banks.

Risks of the current configuration:

1. Risk of creating a gateway for US providers: in the configuration currently planned, the digital euro provides US and other non-European tech and payment companies with access to the customer interface, customer data and payment infrastructure without any of the regulatory obligations and costs that only European providers face. This goes against the objective of digital sovereignty.
2. State parallel infrastructures weaken the market and innovation: the European Central Bank (ECB) is planning not just two new sets of infrastructure but also its own product for end customers (through an app). An administrative body has neither the market experience nor the customer access that banks and payment providers do. At the same time, the ECB is removing the tried-and-tested allocation of roles between the central bank and private sector.
   Furthermore, the Eurosystem’s digital euro project will tie up urgently required development capacity for many years and thereby further exacerbate Europe’s competitive disadvantage. The burden of investment and the risk resulting from introducing the digital euro will be disproportionately borne by banks and savings banks. In any case, the banks and savings banks have already developed a European market solution, Wero, which is currently coming onto the market. The digital euro needs to strengthen rather than weaken this European-led payment method.
3. Risks for financial stability and lending: without clear holding limits, there is a risk of uncontrolled transfers of deposits from banks and savings banks into holdings of digital euros. Deposits are the backbone of lending; large-scale outflows would weaken both the funding of the real economy – especially small and medium-sized enterprises – and the stability of the system. Holding limits must therefore be based on usual payment needs and be subject to binding regulations.

Disclaimer

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• The sponsor is Bundesverband der Deutschen Volksbanken und Raiffeisenbanken e.V. , Schellingstraße 4, 10785 Berlin, Germany
• The ultimate controlling entity is Bundesverband der Deutschen Volksbanken und Raiffeisenbanken e.V. , Schellingstraße 4, 10785 Berlin, Germany

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