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(Kitco News) - The path to a world of central bank digital currencies (CBDC) continues to be laid as the European Central Bank (ECB) has now entered the final stage of the investigation phase of their digital euro project, according to Fabio Panetta, a member of the ECB executive board.
Panetta made the comment on Monday during a speech for the Committee on Economic and Monetary Affairs of the European Parliament, where the ECB published a report setting out the Eurosystem’s views on how people could access, hold and start to use the digital euro.
Also included in the report is an examination of how the digital euro could be distributed by intermediaries and the services and features it could offer. In recent months, the ECB has conducted investigations into technical issues related to the digital euro and has also conducted focus groups designed to get feedback from potential users as to what they think about the different features a digital wallet should have.
“In a modern economy, being able to pay digitally is a basic need for people,” Panetta said. “With cash, central banks already provide a means of payment that is risk-free, widely accessible and easy to use, and that leaves no-one behind. But the rapid digitalisation of our economies requires us to complement cash with its evolution in the digital sphere: a digital euro.”
Panetta added that the creation of a digital euro will help the ECB “maintain its role as a monetary anchor in the digital ear, thereby reassuring us that one euro is one euro whatever form it takes and wherever we go.”
While people would have no obligation to use the digital euro, “they should always have the option to use it,” Panetta said, “just like they do with cash today.” He noted that “Europeans see the ability to pay anywhere as the most important feature of a potential digital euro,” and said the ECB has been focused on “investigating the technical solutions that would enable people to easily make payments in digital euro, anywhere in the euro area.”
“But if we want the digital euro to replicate these cash-like features, we need a proper regulatory framework,” Panetta noted.
If legislators gave the digital euro legal tender status, it would then be considered a public good, allowing Europeans to use it to make payments anywhere in the euro area, he said. “So, it would be more beneficial and convenient for all users if merchants that accept digital payments were obliged to accept the digital euro as legal tender.”
But in order for the digital euro to be widely usable, Panetta said the ECB needs to focus on providing access. “Individuals and merchants will expect to be able to obtain digital euro at their banks, just like they do today with cash. It should be simple for people to start using the digital euro, and there should be no need to change bank in order to do so.”
Accomplishing this goal will only be achieved through regulatory measures, he noted, as was discovered in previous attempts to build a pan-European payment system. Panetta said achieving widespread acceptance and access are “essential to ensure that the digital euro can support financial inclusion and generate opportunities for financial intermediaries.”
“A digital euro would offer a new platform for innovation that is truly European,” he said. “It would allow these intermediaries to build services for their customers that are instantly available across Europe. It could help domestic payment providers and new instant payment solutions to scale up and operate at the European level. And it would reduce dependence on a few dominant providers, increasing competition and resilience.”
He went on to say that in order for the digital euro to achieve the same level of adoption as physical banknotes have, the EU needs to adopt a common set of standards, also known as a “payment scheme.”
“The scope of these standards will be limited to what is strictly necessary to establish and offer users a harmonised and convenient payment experience, while enabling and inviting the supervised intermediaries to develop further services and solutions,” he said. “The Eurosystem should be able to govern the standards to ensure that using a digital euro in the future is as standardised as using cash today. It would do so by steering consensus among all involved stakeholders – consumers, retailers, banks and non-banks.”
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To help encourage the active distribution of the digital euro, Panetta said that economic incentives should be used and highlighted four core principles for a digital euro compensation model.
“The first principle is that, as a public good, the digital euro should serve society. Second, intermediaries should be compensated for the services they provide, just like they are for other digital payments. Third, legislative safeguards should prevent merchants from being overcharged by intermediaries if they are obliged to accept digital euro as legal tender.” And fourth, “the Eurosystem would bear its own costs. This would reflect the public good nature of the digital euro and follow the same logic that currently applies to cash.”
Panetta concluded his speech by stressing that the design and regulatory framework for a digital euro are vital “to ensuring that it retains its key characteristics as a public good.”
“These two processes – legislative and design – should advance in parallel so we can be in a position to promptly begin issuing a digital euro, if and when warranted,” he said. “The possible decision by the Governing Council to issue a digital euro would be taken only after the legislative act has been adopted.”
The final stage of the investigation phase is expected to be launched later in 2023 and will focus on developing and testing the possible technical solutions and business arrangements necessary to provide a digital euro, Panetta said.
