On Wednesday, Fabio Panetta, Member of the European Central Bank (ECB) Executive Board, presented the European Parliament’s ECON Committee with the ECB’s future approach towards a digital euro following a public consultation on the topic. “A digital euro can only be successful if it meets European citizens’ needs and expectations”, Panetta said during the hearing.
The consultation, which was conducted between October 2020 and January 2021, was designed to inform the ECB’s future approach on a digital euro, with the vast majority (94%) of the 8,200 responses coming from citizens. The majority of the contributions came from Germany (47%), Italy (15%) and France (11%). As such, while the consultation may provide some strong insights, it may also be argued that it is not representative of the entire EU population.
A high level of confidentiality was the top priority for 43% of the respondents, followed by security concerns (18%), cost factor (9 %) and the possibility of offline use independent of the internet (8%). Overall, the respondents supported specific requirements to avoid illegal activities, with less than one in ten responses supporting complete anonymity. More than two-thirds of respondents said it was important for intermediaries to offer innovative services that enable access to a digital euro and indicated that it should be integrated into existing banking and payment systems. About a quarter of respondents thought that a digital euro should make cross-border payments faster and cheaper.
While recognising the importance of protecting data privacy, Mr. Panetta admitted that payments made in a digital euro would involve “limits to anonymity” as they “would provide fertile ground for unlawful activities” such as money laundering or the financing of terrorism. Therefore, he argued, for electronic and large-value payments, intermediaries should be able to access detailed information. Digital payments could nonetheless respect different levels of data protection and allow smaller transactions without the sharing of payment data with third parties. Panetta also emphasised that the ECB, unlike private service providers, has no interest in collecting payment data for commercial reason.
Mr. Panetta also reiterated that the introduction of a such a central bank digital currency (CBDC) would not imply an end of cash, saying that “cash would remain available alongside a digital euro.” By making the clarification, the Italian is countering some critics’ fears that the central bank could abolish cash altogether, for example, to track payment processes seamlessly or prevent the circumvention of negative interest rates by holding cash.
In a next step, the ECB’s Governing Council will decide in the coming months whether to launch a formal, 2-year, investigation phase on the feasibility of a CBDC, which according to Panetta, will focus, among other things, on possible design options and user requirements. Only at the end of this process will the Governing Council decide whether or not to progress the work towards the introduction of a digital euro. The ECB’s work is the result of a quickly moving dynamic in the growing global acceptance of privately-run digital currencies such as Bitcoin or the Diem project, which plans its introduction later this year. It also comes as a growing number of central banks around the world, such as Sweden or China, ponder the introduction of their own central bank digital currencies.
Compliments of Vulcan Consulting – a member of the EACCNY.