CBDC: what are the main questions about digital euro?

Seen as a fast, easy and secure instrument supporting the digitalisation of the European economy and encouraging innovation in retail payments, digital euro is one of the main questions addressed today by the European Central Bank (ECB). In a context of strong evolution in the field of regulation, technology and uses, this topic brings some key questions linked with our ecosystem. How to integrate the other stakeholders of the market in the works of ECB and European central banks? Which convergence with other projects like European Payments Initiative (EPI)? What about the information and communication towards end-users: the European consumer?

According to the report about digital euro presented by ECB in October of 2020, this innovation would combine the efficiency of a digital payment instrument with the safety of central bank money. Thus, it would help to deal with situations in which people no longer prefer cash, and would avoid dependence on digital means of payments issued and controlled from outside the euro area. In other words, Central Bank Digital Currency (CBDC) appears in Europe as an innovation in the crossroads of technological innovation, financial stability and monetary sovereignty. 

Covid-19: a booster of CBDC debates

At a European level, in addition to a report published in 2020, ECB launched a public consultation from October of 2020 to January of 2021 that resulted in a strong success, according to this organization, with more than 8000 answers from European citizens and professional organisations and associations. Among the key insights of this public consultation appears the protection of privacy as a strong issue, such as security a the pan European level, confirming that CBDC represents a strong part of the evolution of European payments infrastructure.

Digital euro: a complement of cash

In opposition to some questions linked with this issue, digital euro is not seen by ECB as a way to accelerate the decline of cash, but as a complementary tool answering evolution of uses and financial stability concerns. ECB aims at continuing the emission of cash and the distribution of digital euro may be addressed by commercial banks. Nevertheless, some key questions remain about the concrete application of CBDC at a European level: what will be the business model of digital euro? Which uses cases and needs this innovation will address? Some key questions that will need an answer to ensure the success of this innovation. Above all when we know that Europe of payments is composed, today, of various works and projects. On the one hand, the development of request-to-pay, seen as a ‘catalyst’ of instant payment at a European level - a huge evolution if we consider the strong ambitions of European Retail Payments Strategy of European Commission about instant payment as the ‘new normal’. On the other hand, the EPI project, announced in July of 2020 by several European banks to address the issue of cards, wallets and P2P payments in the European context, with a program for the next five years. What will be the place of CBDC in this context? According to several professionals linked with the EPI project, CBDC and EPI will be addressed separately, since there is not the same maturity in these two topics. 

Scenarios related to the issuance of a digital euro

ECB report published in October of 2020 brings some ideas about the different scenarios related to the issuance of a digital euro. The first one is linked with the digitalisation and independence of the European economy, by reducing costs and reinforcing new business models. ‘A digital euro could be issued to facilitate the development by supervised intermediaries of a full range of pan-European end-user solutions accessible to consumers’, attests the report. The second one is linked with the role of cash as a means of payment which is declining significantly. According to ECB report, ‘a decline in the use of cash in the economy would imply increasing dependence on private forms of money and private payment solutions in the euro area. Beyond a certain point, such a trend could endanger the sustainability of the cash infrastructure and hamper the provision of adequate cash services. European citizens would thus encounter difficulties in accessing the only means of payment that is provided by the public sector and that takes account of their needs, regardless of any commercial perspective. In response to a decline in the use of cash, the Eurosystem could introduce a digital euro as an additional form of public money and means of payment’. The third scenario concerns a form of money other than euro-denominated, like global stablecoins. The fourth scenario is purely linked with monetary concerns: ‘if the Eurosystem were to conclude in the future that the issuance of a digital euro is necessary or beneficial from a monetary policy perspective’. The last scenario is linked with a need to mitigate the probability that a cyber incident, natural disaster, pandemic or other extreme events could hinder the provision of payment services. In addition to these considerations, ECB also analyses some scenarios linked with the broader objectives in relation to the international role of the euro, confirming the strong cross-border issue of this topic.

About Andréa Toucinho

Expert in payments and financial services, Andréa Toucinho is Director of Studies, Prospective and Training of Partelya Consulting and Country Ambassador for France of European Women Payments Network (EWPN). France Representative of Aefi Spain and Afip Portugal, she realised several publications about payments and is one of the co-authors of The PAYTech Book published in January of 2020 by Wiley.

About Partelya Consulting

Created in 2008, Partelya Consulting is a French innovative consulting company specialized in means of payment and IT that contributed to various projects in the field of payments for companies and financial institutions. It works with all actors of the market, from banks to schemes and retailers, on technological and strategic issues. The company works at an international level (France, Europe, Morocco etc) and it is a member of the French Association du Paiement.