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The digital euro is an instrument, not a commercial product, a European Central Bank (ECB) official has told members of the European Parliament (MEPs).
In what one MEP joked is becoming a “big tour”, Fabio Panetta’s digital euro charm offensive has continued with a Q&A session with the European Parliament’s Economic and Monetary Affairs (ECON) committee.
In the session, he reassured that the ECB’s central bank digital currency (CBDC) plans will not disintermediate the role of private actors.
“We’re not a commercial company,” he said.
This is not the first time the ECB has made a similar claim. When Target Instant Payments Service (TIPS) was launched in 2018, many criticised it due to the fact that it was a public authority run service effectively competing (and at a cheaper price) with several commercial-based services, such as EBA Clearing’s pan-European instant payment service, RT1.
Speaking at Money20/20 in 2018, ECB’s Helmut Wacket defended TIPS, saying: “This is not a competitive proposal and we do not intend to dominate”, noting that it had decided to launch TIPS as it had doubts that pan-European reach would be fully achieved.
At the ECON committee, Panetta told parliamentarians that the ECB wants to support those who are in the business of payment services, summarising that the digital euro should be considered as a sort of raw material so that banks can provide even better services to their customers.
“In the future, banks will likely build innovative products on top of a digital euro”, he said, pointing out that banks already today provide a means of payment through cash issued by central banks.
The ECB will be fully interoperable with the existing supervised institutions that are in the business of providing payment services to European citizens, Panetta said. “So, we are fully aware that this is fully necessary for their success.”
Panetta’s views came in response to Markus Ferber, a German centre-right MEP, who was weighing up whether the digital euro actually has advantages for private customers.
“You say that this will give advantages to private customers”, he said, mulling on what the impact could be for consumers and their relationship with commercial banks.
“Quite honestly, when you look at the functions of a central bank, if I can have a digital account with the central bank, I don’t need my regular bank and I don’t need guarantees as the central bank can’t go bankrupt whereas the local bank can,” he said.
The central banks also cannot grant loans, Ferber continued to point out. “What will the impact be of this brave new world? Is this really good for normal bank transactions?”
“This won’t just be a digital euro, this will be part of a big payments system and we’re going to have to look at that”, he said, questioning how this will all balance out.
Ferber also raised the issue of anti-money laundering (AML), and the EU’s latest package to counter the problem.
“You said that payments wouldn’t be traceable,” he pointed out. “This would mean that people could avoid sanctions that may be coming from other countries”, he continued, further raising the issue of people with criminal intentions.
The ECB, and co-legislators in the EU, need to ensure that advantage on one side is not undermined by a disadvantage on the other, he summarised.
AML issues were also raised by Eero Heinäluoma, a Finnish MEP from the EU’s centre-left faction, with his focus being on the cash payment ceiling being introduced as part of the EU’s AML package.
Here, Panetta gave his backing to the European Commission’s proposals, stating that the cash ceiling strikes the right balance.
The EPI and European sovereignty
How the digital euro will work alongside the European Payments Initiative (EPI) was also discussed, due to another question from Heinäluoma. Panetta endorsed the EPI, stating that it is a “very important initiative”.
“I’m sure we have all seen the news today about one large non-Euro area payment service provider that has raised its fees in the UK market soon after the UK left the EU”, he said, referencing the fallout between Amazon and Visa over interchange fees.
Post-Brexit, the interchange fee constraints were not applicable and one of the companies that are bound by this regulation took this occasion to raise fees, he said, not naming any names. Although, it should be noted that both international card schemes raised their interchange for transactions between the UK and the EU at this time.
“The initiative by European banks to build a payment system and scheme that would be operating throughout the Euro area is very useful,” he pointed out.
The EPI started because of requests by the ECB and the European Commission, Panetta said. “I have recently sent a letter to the EPI confirming the ECB’s support, and we are in close contact with them.”
This is similar to the political endorsement recently made by finance ministers in EU member states including Germany, France and Poland.
Echoing the EPI itself, Panetta acknowledged that building the scheme is a complicated task.
Yet, he pointed out that these are negotiations for the private sector.
European sovereignty was also a key element of Panetta’s opening speech to the parliament, where he pointed out that non-European payment providers already handle around 70 percent of European card payment transactions.
“If the footprint of these providers continues to grow, it would raise serious questions for Europe’s autonomy in payments, with potential implications for users,” he cautioned.
He warned that although EU consumers benefit from partnerships including the international card schemes, such as Bancomat in Italy, they may not be sustained.
“For some debit card schemes, this use in cross-border settings could be curtailed in the future as it depends on the continued willingness of the international card schemes to provide such services,” he warned.
