The digital euro is attractive, but not too successful, says the ECB operator

According to Fabio Panetta, Senior Executive of the European Central Bank (ECB), the digital euro is an attractive means of payment, but its design limits its ability to store value, threatening banks and personal money. Panetta emphasizes that both this paradox and the need to successfully issue CBDCs require attention.

Fabio Panetta (Between) – Members of Board of the European Central Bank

Europe’s digital currency complements cash and becomes a currency anchor

While cash now gives everyone access to central bank digital currency (CBDC), its importance in payments is diminishing as users increasingly prefer digital payments and shop online. Internet sales in the EU have doubled since 2015, and only about 20% of cash reserves are now used for payments, compared to 35% a decade and a half ago, Fabio Central Bank said, said in a speech to the Elcano Royal Institute in Madrid.

“As people begin to use cash more as a store of value than as a means of payment, the digital euro will allow them to continue using central bank money as a medium of exchange in the digital age. Keynote focusing on the future role of CBDCs. In his view, the digital euro and cash will complement each other to ensure that central bank money remains the monetary anchor for the payments ecosystem.

To achieve this, the digital form of the euro must be attractive to be widely used in payment transactions. At the same time, the design will prevent it from becoming a “successful store of value that overwhelms private money and increases the risk of mass withdrawals”. In his comment section, Fabio Panetta emphasized:

“While we have discussed the paradox of the ‘too successful’ digital EU, we also need to pay a lot of attention to the risk of it not being successful enough.”

Panetta added that any attempt to issue a CBDC must meet certain conditions in order to be successful. Aside from its appeal as “the only risk-free form of digital currency”, the digital  must enable digital payments wherever Europeans need it for their purposes. It also needs to ensure that users want to take advantage of it, while the middlemen should see the benefits of distribution outweigh.

“That is why it is crucial for the success of the digital euro to develop a convincing value proposition for everyone involved,” emphasized Fabio Panetta in a speech published by the ECB. This is an important factor in the research phase of the CBDC project that the bank launched earlier this year.

“The ECB and the EC are jointly examining a number of political, regulatory and design issues at the technical level that arise from the possible availability of a digital euro as a fiat currency and are achieving the desired network effects.”

The digital euro offers convenience and security

Fabio Panetta announced that the digital euro is a “free and convenient way for users to make digital payments anywhere in the euro zone”. He added that this would also improve privacy on digital payments as the ECB is not interested in monetizing users’ data. In his view, compliance with anti-money laundering rules should not compromise privacy.

The ECB representative said that the digital euro should not compete with private sector digital payment services and that intermediaries should be able to reach users by offering new services with the ‘digital euro’ such as credit facilities and automatic payments. As a result, small financial institutions and fintech companies benefit from a level playing field and have the opportunity to compete with large technology companies.

Fabio Panetta also sees that the digital euro supports the international role of the European single currency and European autonomy in global payments.

He believes that the increasing availability of private digital currencies such as stablecoins and the widespread availability of private digital payment options will not make the digital euro obsolete.

“With digitization in full swing, central banks have to prepare for a digital future in which the demand for cash as a medium of exchange may decline and the ability to convert private money into cash must be supplemented by the convertibility of central banks into digital currency. ”

Dozens of central banks around the world have explored the possibility of issuing CBDCs in response to the growing popularity of cryptocurrencies and the declining use of cash. In addition to the ECB, there is the US Federal Reserve and the Bank of Russia. The People’s Bank of China is arguably the most advanced. Domestic testing is ongoing and she plans to test a digital yuan for cross-border transactions.

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