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A digital euro could be issued by the EU within four years, a senior official at the European Central Bank (ECB) has said, with peer-to-peer payments potentially among the first use cases.
The ECB has continued to play up the prospects of a central bank digital currency being used in the eurozone, with a new speech by one of its representatives suggesting that the timeline for a digital euro may be quicker than anticipated.
“The idea would be that, let’s say, four years from now, we will be ideally ready to issue the digital euro,” Fabio Panetta, a member of the ECB's executive board, said at an event at the National College of Ireland. “It’s a very complex project that has never been done before, but I’m a bit optimistic that in four years’ time we will be prepared.”
The ECB’s plans for a retail central bank digital currency (CBDC) first began to take shape in October 2020 when the central bank released a public consultation, which ended up breaking records in terms of the volume of responses that it received.
The ECB began its investigation phase in Autumn 2021, which it says will conclude in October 2023.
Before then, sources have told VIXIO that the European Commission is likely to propose digital euro legislation in the first half of 2023, with members of the European Parliament from across the spectrum keen for the digital euro to be issued.
Issues such as the prospect of Meta’s now abandoned Diem project, the Ukraine/Russia conflict and the EU’s desire to be a payments innovation leader have all played a role in making the project a priority for the EU’s institutions.
“We live in turbulent times. As we face the most serious geopolitical crisis since the Cold War, old certainties are increasingly being challenged,” Panetta commented. “The invasion of Ukraine has cast further doubt on the reliability of a global order that enabled unprecedented economic interdependence.”
Old certainties are beginning to falter in the financial sector too. “Digital technologies, changing payment habits and the race for payments supremacy are testing the complementarity of public and private money, which has long formed a cornerstone of our monetary system.”
Panetta, a former director general of the Banca d’Italia, further warned that in spite of claims from crypto advocates that it is a trustworthy form of currency that is free from government control, it is too risky to act as a reliable means of payment. “They behave more like speculative assets and raise multiple public policies and financial stability concerns,” he said, adding that stablecoins are not risk-free either.
“There is no guarantee that they can be redeemed at par at any time, just last week the world’s biggest stablecoin temporarily lost its peg to the dollar,” he pointed out. “Stablecoins do not benefit from deposit insurance, nor do they have access to central bank standing facilities. They are therefore vulnerable to runs as we have just seen with the crash of another stablecoin, TerraUSD.”
Although as VIXIO recently reported, Terra USD was a particularly experimental version of a stablecoin.
In particular, Panetta spoke up about the opportunities for financial inclusion that could be spurred by the launch of a CBDC in the EU, suggesting that digital money issued by the central bank would offer the possibility for everyone to use public money for digital payments.
“It would be a sound, reliable means of payment designed in the public interest, and it would preserve the coexistence of sovereign and private money that has served us well so far,” he said.
For Panetta, CBDCs will allow public money to continue to play its role in anchoring the stability of the payments system and contributing to its efficiency, and all the while private money will add innovation and diversity to this foundation.
“The coexistence of public and private money can continue to be a win-win situation, perhaps even more so in the digital age.”
