Introductory statement by Fabio Panetta, Member of the Executive Board of the ECB, at the ECON Committee of the European Parliament. The quest to ensure that means of payment are fit for purpose has characterised economic history.
The quest to ensure that means of payment are fit for purpose has characterised economic history.
In the provision of money by the sovereign, Europe can boast of a primacy dating back to ancient Greece and the Roman era.
The search for sound money continued in the “dark” years of the High
Middle Ages, despite the resumption of bartering; in the eighth century
the monetary reform of Charlemagne spread out in many European
countries.
The
evolution of money over the centuries and across different regions has
reflected changes in economic life, in technology, and in societal
beliefs and behaviours. When Marco Polo visited China in the 13th
century, he was shocked to discover paper money, which we now know had
already been used there for centuries. He called its creator a perfect
“alchemist”.
Today, digitalisation is spreading to all areas of our life, including
the way we pay. So I do not expect anyone to find the idea of a digital
currency as astonishing as Marco Polo found the idea of paper money.
Nowadays,
central banks are entrusted with the fundamental task of providing
citizens with costless access to simple, secure and risk-free means of
payment that can be used on a large scale. Delivering on this task
requires central banks to analyse relevant developments in society and
adapt accordingly.
In order to be able to give Europeans easy
access to a safe form of central bank money in a society that is moving
increasingly quickly towards digital payments, the ECB’s Governing
Council has decided to advance work on the possible issuance of a
digital euro.
Should the need arise, we want to be ready to
introduce a digital euro: a form of central bank money that would
complement cash, not replace it. Together, these two types of money
would be accessible to all, offering greater choice and easier access to
ways of paying.
After publishing our report on a digital euro on
2 October, we are now in a phase of listening and experimentation. Our
exchange today is a key step in this phase and marks the launch of the
ECB’s public consultation.
I will come back to this consultation in a moment. But first I will
outline the characteristics of a digital euro, as well as the advantages
and the challenges it could present. I will also discuss some scenarios
that could require the ECB to issue a digital euro.
What is a digital euro?
We
already have an array of choices when it comes to retail payments:
central bank money in the form of cash, commercial bank money – for
example, digital bank deposits – and non-bank digital money (such as
payment cards). What we do not have is a digital currency that is issued
by the central bank and that we can use for all our daily transactions,
including in e-commerce.
A digital euro would fill this gap: it
would be an electronic form of central bank money accessible to all
citizens and firms – in other words, a digital equivalent of euro
banknotes. It would provide costless access to a simple, risk-free and
trusted digital means of payment, accepted throughout the euro area. In
the digital era, it would preserve the public good that the euro
provides to European citizens.
Compared with existing means of
digital payments, a digital euro would provide added value in several
ways. First of all, it could be used for payments anywhere, by anyone
and at any time – just like cash in the physical world.
Second,
it would bring simplicity: a digital euro should be designed to be easy
to understand, easy to use and easy to transfer. Regardless of its
features or the technology it would be based on, people from all groups
in society should be able to use it in their daily lives. This is
because making a payment is about more than just exchanging money for
goods and services: it is a form of social interaction made possible by
money, which has been described as “the most universal and most
efficient system of mutual trust ever devised”.
Finally,
a digital euro would increase privacy in digital payments thanks to the
involvement of the central bank, which – unlike private suppliers of
payment services – has no commercial interests related to consumer data.
Ensuring privacy is an essential element of modern democracies and part
of our European values. Payments must also respect people’s right to
privacy in the digital era, and the design of a digital euro would have
to respect this principle. This is a core aspect we will look at –
indeed, we have already started exploring possible ways of enhancing
privacy.
At
the same time, payments in a digital euro – just like any form of
payment – would have to respect the rules on countering money
laundering, the financing of terrorism and tax evasion. This would
enable public authorities to combat any illegal activity more
effectively.
To summarise, the digital euro would still be a euro,
only in digital form. It would both shape and promote the
digitalisation of payments, while reducing the associated risks. This
would in turn support the ongoing digitalisation and modernisation of
the European economy.
Why might we need a digital euro?
A digital euro would be critically important in a number of scenarios, which are analysed in our report.
In
particular, it would be needed in the event that citizens become
reluctant to use cash as they go digital. This is not the situation we
face today: cash is still the most common way of making retail payments
in the euro area. However, its role as a payment instrument is
diminishing – in some countries rapidly so – as consumers are
increasingly paying electronically:
as a proportion of all physical retail payments, cash payments
decreased from 79% in 2016 to 73% in 2019. This trend has accelerated
during the pandemic – with a vast majority of consumers expecting to
continue using digital payments as often as they do now, or even to use
them more often in the future.
And because of this trend, we may see a further increase in the uptake
of international card schemes and solutions such as payment wallets and
apps developed by large technology firms.
A digital euro would
ensure that even in a situation where there is rapid digitalisation in
the world of payments, sovereign money remains at the core of the
European payment system. This would contribute to financial inclusion.
It would also shield us from the risk that a private or public digital
means of payment issued and controlled from outside the euro area could
largely displace existing domestic means of payment. Such a development
would raise regulatory and financial stability concerns and could even
put Europe’s monetary and financial sovereignty at risk.
How could a digital euro be introduced? Legal considerations and possible challenges
A digital euro would raise legal, technological and policy questions that we need to address.
Let
me start with the legal basis. Today, only euro banknotes and coins are
legal tender under EU primary law. This means they can be used to pay
anywhere in the euro area.
Therefore, a key issue discussed in the report is the importance for a
digital euro to have legal tender status. Indeed, central bank money is a
public good. Euro banknotes fulfil the core function of providing
people with risk-free central bank money. It is crucial to ensure that,
as a form of public money, a digital euro enjoys universal reach and
acceptance, as the legal tender status provides.
The introduction
of a digital euro also raises technical challenges. Some are related to
information technology and cyber risks, which will need to be managed
effectively. Others are related to design choices. In this respect, we
can leverage the experience gained in past projects that have put us at
the frontier of payments.
Finally, the design of a digital euro would have to be consistent with key policy objectives.
In particular, its design should address the possibility that investors
could rapidly move significant amounts of bank deposits into a digital
euro, with potential adverse effects on the banking sector and financial
stability. We are exploring design strategies to address this and other
challenges, and we will assess them in depth. For instance, we could
set the necessary incentives through the remuneration of digital euro
holdings, to make sure the digital euro is an attractive means of
payment, not a form of investment.
What next? Exploring design options, consulting the public and working together
Our
report also describes the design options we are considering. We will
explore all aspects of different options: whether they are technically
feasible, whether they comply with the principles and policy objectives
of the Eurosystem, and whether they satisfy the needs of prospective
users.
But introducing a digital euro is more than a technical
question. The value of money – in both physical and digital forms – is
rooted in citizens’ trust. Acceptance by the public is crucial. For this
reason, today we are launching our public consultation. We are seeking
feedback on the design and on the financial and social issues
surrounding the possible introduction of a digital euro.
We
welcome everyone’s views: citizens, merchants, the non-financial sector,
professionals from the financial industry, technology companies, and
academics. We encourage everyone to take part.
After the public
consultation and a period of preparatory work, the ECB’s Governing
Council will decide – towards the middle of 2021 – whether to initiate a
fully-fledged project that should lead us to define the specific
characteristics of a digital euro and get ready for a possible launch.
This journey will require prudence and perseverance.
Conclusion
Let
me conclude. Since the introduction of the euro, the ECB has been
responsible for preserving citizens’ trust in our currency. Today,
support for the single currency stands at record high levels. To
be successful, a digital euro would also have to enjoy strong support
from the public. It would be a digital symbol of progress and
integration in Europe. And it would support the international role of
the euro.
Issuing a digital euro would be relevant for almost
everything the ECB does. And it would affect our society as a whole.
This is why we are seeking, through the public consultation we are
launching today, an intense and open dialogue on our recent report with
citizens and other stakeholders.
Together with European
institutions and authorities, in primis the European Parliament, we will
discuss the framework that would be necessary to introduce a digital
euro. As co-legislators and representatives of European citizens, you
will have a fundamental role to play in the process. I therefore very
much look forward to our first exchange today.
© ECB - European Central Bank
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