Digital euro should be attractive but not ‘too successful’, says ECB’s Panetta

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The digital euro should be an attractive means of payment, but its design should prevent it from becoming such a popular store of value that it threatens banks and private money, according to Fabio Panetta, a senior executive in the European Central Bank. Panetta stressed that this paradox as well as the need to issue a successful CBDC must be taken into account.

The European digital currency to complement cash and be the anchor of Monterey

While cash currently allows people to access the central bank’s digital currency, its importance in payments is declining as consumers increasingly prefer to pay digitally and shop online. Internet sales in the euro area have doubled since 2015 and only around 20% of the stock of cash is now used for payments, up from 35% a decade and a half ago, noted Fabio Panetta, member of the Bank’s executive board. Central European Union in a speech at the Royal Elcano Institute in Madrid.

Fabio Panetta, member of the Executive Board of the ECB.

“As people start to use cash more as a store of value rather than a means of payment, having a digital euro would allow them to continue using central bank money as a medium of exchange in the digital age. “said Panetta during her remarks, focusing on the future role of central bank digital currencies (CBDCs). In his view, a digital euro and cash would complement each other to ensure that central bank money remains a monetary anchor for the payments ecosystem.

To achieve this, the digital form of the euro should be attractive for regular use in payments, says the ECB official. At the same time, its design should prevent it from becoming “such a store of value that it crowds out private money and increases the risk of bank runs.” In his comments, Fabio Panetta underlined:

While we have discussed at length the possibility that a digital euro is paradoxically “too successful”, we must pay as much attention to the risk that it is not successful enough.

The effort to issue the CBDC should meet certain conditions for success, Panetta said. Besides its appeal as the ‘only risk-free form of digital currency’, the digital euro should facilitate digital payments wherever Europeans need them for this purpose. In addition, traders should be assured that consumers want to use it while intermediaries should find that the benefits of its distribution outweigh the costs.

“Developing a compelling value proposition for all stakeholders is therefore essential to the success of the digital euro,” insisted Fabio Panetta in the speech published by the ECB. This, he added, is a key part of the investigation phase of the CBDC project which was launched by the bank earlier this year. The executive pointed out:

The ECB and the European Commission are jointly examining at a technical level a wide range of policy, legal and design issues arising from a possible introduction of a digital euro, including the role that legal tender status could play in achieving the objectives. desired network effects.

Digital Euro will be convenient and contribute to privacy, says Panetta

Fabio Panetta revealed that for consumers, the digital euro will provide a “free and convenient way to pay digitally anywhere in the euro area”. He added that it would also increase the privacy of digital payments, as the ECB, he said, has no interest in monetizing user data. In his opinion, compliance with anti-money laundering regulations would not interfere with improving privacy.

The representative of the management of the ECB believes that the digital euro should not compete with digital payment services offered by the private sector and intermediaries will be able to embark users by providing new services with “the digital euro inside. Such as credit facilities and automated payments. Thus, small financial institutions and fintech companies would benefit from a “level playing field” and have the opportunity to compete with large tech companies, Panetta said.

The member of the ECB’s executive board also considers that the digital euro supports the international role of the common European currency and the autonomy of Europe in global payments. “Making it accessible to non-residents and interoperable with other CBDCs could facilitate cross-border payments, which are currently expensive, low speeds and limited access,” noted Fabio Panetta.

He is convinced that the growing supply of private digital currencies such as stablecoins and the wide availability of private digital means of payment would not make the digital euro redundant. “With digitization at full speed, central banks must prepare for a digital future in which the demand for cash as a medium of exchange may weaken, requiring the convertibility of private currency to cash to be complemented by the convertibility into digital currency of the central bank “, he insisted. .

Dozens of central banking institutions around the world have explored the possibility of issuing CBDCs in response to the growing popularity of cryptocurrencies and the declining use of banknotes and coins. In addition to the ECB, these include the US Federal Reserve and the Bank of Russia. The People’s Bank of China has arguably the most advanced project, with national trials already underway and plans to test the digital yuan in cross-border transactions.

Do you think the digital euro will be a successful CBDC project? Share your expectations in the comments section below.

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banks, CBDC, Central Bank, costs, cross-border, Digital currency, digital euro, Europe, Euro zone, Executive, Fabio Panetta, Financial institutions, fintechs, means of exchange, means of payment, monetary anchor, Official, Payments, Confidentiality, project, word, store of value

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