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A senior official at the Banco de España has erred on the side of caution in a recent speech on the digital euro, stressing that the financial stability of the EU’s banks must be prioritised.
A Banco de España official has become the latest to offer their take on the digital euro, saying that officials are investigating “what potential safeguards could be built into the digital euro” to ensure that it does not undermine the EU’s banking system.
“Despite the robustness of our banking sector, we cannot ignore the elements that might impact the competitiveness and profitability of the banks,” said Margarita Delgado, deputy governor of the Banco de España, in a speech published on the central bank’s website.
The issuance of a digital euro may be some time away, with experts suggesting it is unlikely to become a reality until at least 2026.
However, the European Central Bank’s (ECB) investigation phase that started in October 2021 is tipped to conclude in October this year.
On top of that, the European Commission has released its regulatory proposal for a digital euro, including mandates for payment service providers (PSPs) and merchants alike.
According to Delgado, the digital euro is a project that has to be assessed from different angles, including the impact on banking business models.
This is because payment systems are usually a recurrent source of income for banks.
Delgado also stressed that it is important to gauge the overall impact of a digital euro on financial institutions' liquidity situation as a result of the transfer of money from banking accounts to digital euro wallets.
The banking official said that both of these factors demonstrate why financial stability must be considered, not only from a macro but also a micro perspective.
“We need to bear in mind that the micro supervision and viewpoint is the cornerstone of a strong banking supervision, complemented by a macro analysis,” said Delgado.
'Non-trivial' risks from the digital euro
Delgado also cited “non-trivial” risks in her speech. If, for example, anonymity was to be allowed, Delgado warned that the Eurosystem would be compromising its commitment to fighting money laundering and the financing of criminal activity.
“What's more, this setup would put into question the effectiveness of the tools to limit the use of digital euros as a store of value,” she noted.
“In that respect, a balance needs to be struck between minimising the Eurosystem and intermediaries' involvement in the processing of users' data and still ensuring compliance with the law.”
A digital euro is likely to increase the Eurosystem's general operational responsibilities over the payments channels irrespective of the role it ultimately intends to play in the settlement of these transactions, Delgado added.
“By promoting a digital euro, we must acknowledge that the Eurosystem is potentially putting its reputation at stake in that it remains liable for the overall functioning of the digital euro architecture whether it decides to rely on third parties for its distribution and operation or not.”
Redeeming features
Despite her reservations, Delgado has endorsed the project overall.
She said that a digital euro could fix several market inefficiencies, such as a lack of cross-border payment services inside the eurozone, costs charged to businesses by PSPs and a lack of European PSPs.
The official said that she would "personally support any initiative that might foster further European innovation and integration".
"I believe that the digital euro is one important step to improve the European payment system and, as a consequence, the European financial system."
To read more about Europe’s reaction to the digital euro, read VIXIO’s article, Beyond Brussels: Reaction To The Digital Euro.
