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It is a pleasure to be here with all of you today to talk about the digital euro.
When we launched this project, we made it clear that this is a common European enterprise. Our collective effort is key to the preparation and eventual success of a digital euro.
I would like to take this opportunity to thank Commissioner McGuinness and the President of the Eurogroup, Mr Donohoe, for the excellent collaboration.
As we prepare to potentially issue a digital euro, we want to engage with and listen to stakeholders and society at large. So I would like to thank the National College of Ireland for hosting us today and giving us the opportunity to discuss this project with you.
And I look forward to talking to the students who are here today. Young people will play a key role in the adoption of a digital euro and we need to hear their perspectives to make it a success.
We live in turbulent times. As we face the most serious geopolitical crisis since the Cold War, old certainties are increasingly being challenged. The invasion of Ukraine has cast further doubt on the reliability of a global order that enabled unprecedented economic interdependence.
In the financial realm, old certainties are also beginning to falter. Digital technologies, changing payment habits and the race for payments supremacy are testing the complementarity of public and private money, which has long formed a cornerstone of our monetary system.
Today I will argue that to preserve this symbiosis, public money must keep its role as a monetary anchor in the digital era. A digital euro would fortify our monetary sovereignty and provide a form of central bank money for making daily digital payments across the euro area, just like cash for physical transactions. To succeed, a digital euro will need to add value for users, foster innovation, and enjoy strong political and societal support.
Our monetary system is based on the complementarity of public and private money. Central banks provide a trusted and stable monetary base on which intermediaries such as banks build new payment and financial services. This coexistence has been a powerful driver of stability and innovation.
But digital disruption and the declining use of cash – the only form of sovereign money currently available to the public – are threatening to upend this balance. Consumers are increasingly turning towards non-cash payments. Only 20% of the cash stock is now used for payments, down from 35% fifteen years ago.
We will ensure that cash remains available. But if the current trend continues, we could face a future in which cash loses its central role and its ability to provide an effective anchor as consumers turn to digital means of payment.
We cannot allow public money to become marginalised, for two good reasons.
First, just a few global players have come to dominate certain segments of the payments market, such as card payments and e-commerce. This trend could be accentuated by the expansion of big techs, which can offer payment services leveraging their large consumer base and dominant position in related markets. This could result in an uneven playing field that harms competition and raises data privacy concerns. And by creating further dependencies on non-European providers, it could increase risks to Europe’s strategic autonomy and threaten monetary sovereignty if central bank money is no longer at the heart of the payment system.[1]
Second, even digital payments will ultimately depend on the anchoring role of public money to function smoothly.
Confidence that “one euro is one euro” whatever form it takes rests on our ability to convert, at par, private money – such as funds held in bank deposits or digital wallets – into public money, which is the safest form of money available.[2]
This possibility of conversion reinforces confidence in the various forms of private money used for euro payments, ensuring the smooth functioning of the payment system.[3]
Recent developments in the market for crypto-assets illustrate that it is an illusion to believe that private instruments can act as money when they cannot be converted at par into public money at all times.
Despite claims that cryptos are a trustworthy form of “currency” free from public control, they are too risky to act as a reliable means of payment. They behave more like speculative assets and raise multiple public policy and financial stability concerns.[4] Anyone investing in cryptos must be prepared to lose all their investment.[5]
To mitigate these risks, so-called stablecoins have emerged and have the potential to become globally systemic, especially if issued by big techs. But while the value of stablecoins is linked to what their issuers describe as “reserve assets” and adequate regulation and oversight could reduce risks, stablecoins are not risk-free.[6] There is no guarantee that they can be redeemed at par at any time – just last week the world’s biggest stablecoin temporarily lost its peg to the dollar. And stablecoins do not benefit from deposit insurance, nor do they have access to central bank standing facilities. They are therefore vulnerable to runs[7], as we have just seen with the crash of another stablecoin – TerraUSD.
The increasing popularity of non-cash payments and the expansion of crypto-assets reveal a growing demand for immediacy and digitalisation. If the “official sector” – central banks and supervised intermediaries – does not satisfy this demand, others will.
For this reason, countries around the world are currently exploring the issuance of a central bank digital currency.[8] Nine countries have now fully launched a digital currency and some large economies are quite advanced in their exploration, like China.[9]
Digital money issued by the central bank would offer the possibility for everyone to use public money for digital payments. It would be a sound, reliable means of payment designed in the public interest. And it would preserve the coexistence of sovereign and private money that has served us well so far.
In Europe, issuing a digital euro would also allow us to protect our strategic autonomy while remaining open in a world where technology and dependencies are increasingly being weaponised....
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