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While the European Central Bank’s (ECB) digital euro chief was keen to talk about the project, lawmakers from Brussels’ left and right factions were more interested in knowing how a CBDC would correspond with the widespread acceleration in adoption of crypto.
The primary aim of a digital euro is to maintain the accessibility and usability of central bank money in an increasingly digitalised economy, Fabio Panetta, the ECB’s face for the digital euro project said during an address to the European Parliament, where he stressed that for a digital euro to fulfil this role, people need to be able and willing to use it.
“A digital euro can only be successful if it meets the payment needs of Europeans today and in the future,” he said.
Given the importance now and in the future of payments in e-commerce and physical stores, as well as person-to-person payments, these priority use cases are natural candidates for a digital euro, Panetta said during his address.
Physical stores are the most important market segment for digital payments, accounting for more than 40bn transactions in the euro area in 2019, according to the ECB.
Although data released so far shows that e-commerce payments are less numerous, they have and are anticipated to grow in the coming years, Panetta continued.
These segments are served by a multitude of payment solutions; however, this is often with domestic reach — something that the EU has been keen to expand.
For example, the EU has long been keen to encourage more variety and autonomy in payments and to reduce the reliance on non-European providers and technologies.
“The digital euro could also be used for payments between governments and individuals, for example, to pay out public welfare allowances or to pay taxes,” suggested Panetta.
In regards to collaborative work, Panetta also told parliamentarians that the ECB is working alongside overseas colleagues at the Federal Reserve and the Bank of England as well as others, to ensure that their projects are aligned with the objective of interoperability. “We are exchanging notes on economic and technological issues,” he said.
“Our Bank of England colleagues have come to see us and we were in New York last month, we have very close cooperation.”
This was in response to a question from Germany’s centre-right parliamentarian, Danuta Huebner, who said it was important for the central banks to be in contact with one another and have alignment in certain areas.
Huebner, who sits with the European People’s Party (EPP) faction, also raised concerns about the timeline of the project, stating that although it may take five to seven years, crypto innovations in the meantime will be huge. “Do we want to kill or slow down innovation in the private space, or are we going to have regulation that allows the innovators to expand and move forward?”
The digital euro is not intended to be against innovation, Panetta urged, indicating that, instead, the advent of central bank digital currencies has been spurred by the increase in digital payments.
“There is a risk that in the future, citizens will not have access to central bank money, because the only money we offer to citizens is cash,” he said. “If 50 years from now, the only way to buy is e-commerce solutions, then cash will not be useful.”
There is great hope and support for the digital euro in the European Parliament, said Eero Heinäluoma, who like his colleague in the EPP, also touched upon crypto regulation, citing security and environmental concerns.
“Russia seems to use Bitcoin to circumvent sanctions,” he said. “And given the fact that Bitcoin is generated in a way that uses more energy than certain member states, there are risks that are quite clear and obvious.”
After years of planning for a digital euro, Heinäluoma put the question to Panetta of how the ECB would respond to these issues.
“Crypto is a burning issue that we are all facing,” said Panetta. “It is clear that it is very difficult to intervene in the market for unbacked crypto-assets.”
However, these assets are not used for payments and do not pay any coupon, he said.
“They have no social role, they are gambling,” he said. “They use enormous amounts of energy and every time I see the estimates, the size of the country using the same amounts grows.”
From a social viewpoint, it would be ideal to be less tolerant of Bitcoin-type technologies, Panetta said.
It is an exception to the rule when Bitcoin is traded in exchanges where we know how to intervene, he said. “A large fraction of the activity with these assets is based on informal, decentralised markets and the difficulty is how to intervene.”
For Panetta, like central bank digital currencies (CBDCs), a coordinated, international effort is needed.
ECB report
Panetta’s trip to the European Parliament coincided with the publishing of a new research report by the ECB.
The focus group-based research, which was carried out by Kantar Public, examined trends and habits among the EU’s consumers and businesses when it comes to payments.
The ECB wanted to discover where the digital euro could best serve citizens.
The most important feature that a digital euro can have is that it should be easy to use without requiring technical skills and have a very low bar for the onboarding process, the ECB said based on its findings.
Ideally, it would have the same features as current payment methods, and allow people to make low-value private payments (like cash), make instant payments, have full control of their expenses, withdraw money using a card, to make automatic payments, to have a monthly statement, and to have the possibility of offline use without an internet connection.
Instant payments are also on the wishlist for merchants, the research revealed, which stated that fast or instant payments and instant access to the funds are very attractive features for merchants, as they make cash flow management easier and improve the shopping experience.
“As merchants were not fully satisfied with the speed of their current payment instruments, a new high-performing digital payment instrument with reliable instant payments could provide significant value for this group,” the report found.
However, the research concluded that the overarching key driver for acceptance by merchants of any new payment method, whether digital or non-digital, would be customer demand. “Even high operating fees were not seen as a deterrent when payment methods are very popular among customers, and merchants feel compelled to accept them.”
Nevertheless, fees were still a significant issue for merchants that operate in the EU.
“An element that currently hinders some merchants from accepting new payment methods are the fees involved,” the report says, suggesting that lower fees could convince merchants to accept a new digital payment method as long as there is a significant group of customers demanding it.
As with prior outcomes during the ECB’s investigative work, safety and security were also a concern among respondents, with many seeking guarantees against fraud and hacking, as well as secure and reliable payment authentication methods.
Biometric methods of payment verification, such as those involving iris scan technology, were widely supported by participants, while flexible and adjustable privacy settings were seen as desirable.
