Europe is preparing the ground for a digital euro and it doesn’t want to miss this opportunity to evaluate the whole European payment system.
The European Central Bank (ECB) is leading the efforts to create a central bank digital currency (CBDC). According to an ECB consultation that ran from October 2020 to January 2021, a digital euro could help lower interest rates, speed up transaction processes and reduce the use of cash.
However, the European Commission also launched a public consultation on April 5 to gather information not only about the digital currency, but also to better understand how a CBDC would interact with other methods of payment. The Directorate General for Financial Stability, Financial Services and Capital Markets Union of the European Commission will prepare an assessment of the CBDC based on the expected impact on key industries (financial intermediation, payment services, merchants), users (consumer, retailers), chambers of commerce and other international trade stakeholders.
There is an additional legal reason to conduct this consultation. For a digital euro to be used as the single currency alongside euro banknotes and coins, new regulation based on Article 133 of the European Treaty would be required, and the European Commission is the only institution that can propose this legislation. The European Commission’s finance chief, Mairead McGuinness, said in February that legislation for a digital euro would be proposed in 2023.
The Commission’s consultation, which will accept comments until June 14, focuses on the following issues:
- Users’ needs and expectations for a digital euro.
- The digital euro’s role for the European Union’s (EU’s) retail payments and the digital economy.
- Making the digital euro available for retail use while continuing to safeguard the legal tender status of euro cash.
- The digital euro’s impact on the financial sector and financial stability.
- Application of anti-money laundering and counter terrorist financing (AML-CFT) rules.
- The privacy and data protection aspects.
- International payments with a digital euro.
Interestingly, the design of the consultation doesn’t seek expert input on technical topics. Instead, it wants to get the pulse of society in certain areas to, probably, give answers to some of the biggest policy questions regarding the design of CBDCs. For instance, most of the questions ask the respondent to rate how important a certain CBDC element is to them (e.g., as a payment in stores, low fees, real-time settlement, etc.).
While some of the questions try to answer broad policy questions, like how important it is for a digital euro to “provide access to public money for everyone,” “to get monetary sovereignty” or “develop the EU’s digital economy innovation,” many questions address the creation of pan-European payment solutions.
The European Commission has supported the emergence of competitive pan-European payment solutions since the adoption of a retail payment strategy in 2020 and a digital euro, according to the consultation, “should be considered in the context of ongoing efforts to reduce the fragmentation of the EU retail payments market, promote competition and innovation, including the full roll-out of instant payments, and industry initiatives to offer pan-European payment services.”
This consultation may offer the regulator valuable information about what users, merchants and payment service providers expect from a digital euro and how these answers may be incorporated into the EU’s retail payment strategy.
While this consultation is not binding for the Commission — and as the regulator said, it does not prejudge its final decision — if a good number of comments are submitted, it could have weight in decisions like the level of privacy associated with a CBDC, the role that banks will play as intermediaries and the interoperability of a digital euro with other digital currencies and methods of payment.