By Piero Cipollone, Member of the Executive Board of the ECB, at the Committee on Economic and Monetary Affairs of the European Parliament | Brussels, 14 February 2024
Thank you for the opportunity to speak before the Committee today. As I emphasised during my confirmation hearing, I am committed to actively pursuing the dialogue with the European Parliament on a digital euro.
This year marks the 25th anniversary of the euro and our monetary union. It is up to us to ensure both remain fit for the digital age. The Single Currency Package will help us achieve just that: first, by ensuring cash remains widely accessible and accepted; and second, by complementing cash with a digital option for paying with central bank money.
A digital euro would be a European means of payment which could be used free of charge, for any digital payment, anywhere in the euro area. Together with cash, a digital euro would preserve European citizens’ freedom to use a public means of payment.
Yet, we are at risk of taking this freedom for granted. In my previous role, I received countless letters from mayors of communities – in mountainous regions for instance – who expressed concerns about increasingly long distances to the nearest ATM.
Cash and a digital euro have the same objective: ensuring that everyone, regardless of their income, can pay in any situation of daily life. This is a fundamental right. And it should be protected in the same way in all parts of the euro area.
This is a timely moment to discuss a digital euro. As co-legislators, you are currently debating the European Commission’s legislative proposal, while the Eurosystem initiated the digital euro preparation phase last November.
Your legislative deliberations frame our technical work, and they will continue to do so. The Eurosystem stands ready to provide technical input to European co-legislators as needed. Let me assure you that the ECB’s Governing Council will not take any decision about the issuance of a digital euro until the legislative act has been adopted. This constitutes the framework within which the digital euro will be established as legal tender. We will of course remain fully accountable at all times and will keep you continuously and closely informed about the Eurosystem’s progress towards a digital euro, not just at this stage but also after the legislative deliberations have concluded.
Let me now update you on four key issues that are central to our preparation phase: i) search for possible providers to develop a digital euro platform and infrastructure; ii) preparing the digital euro rulebook; iii) ensuring the stability of the financial system; and iv) last but not least, offering a higher level of privacy when making digital payments.
Searching for possible providers to develop a digital euro platform and infrastructure
At the beginning of this year, we started the selection process to find possible providers who could potentially develop a digital euro platform and infrastructure.
Let me be clear: we are not launching any of the development work now. Instead, we want to establish framework agreements that could be used in the coming years to develop the relevant components if the decision to launch the digital euro is taken. We need to be prepared for such an event. Our readiness would be compromised if we started searching for possible suppliers only after that decision is made. However, we are not tying our hands in any way by sourcing potential suppliers now. The agreements will be sufficiently flexible to accommodate the legislative deliberations or technological advances. And if we were to take the decision not to launch a digital euro, we would not sign any contracts.
Closer engagement with external providers will provide us with insights into the technological options available and the choices to be made. This is particularly crucial for components that are not yet on the market, such as the offline digital euro functionality.
To strengthen our autonomy, resilience and security, a digital euro would rely on a European infrastructure. Accordingly, only legal entities with registered offices in the EU and controlled by such entities or EU nationals will be eligible to participate in the procurement process.
At this stage, we have issued calls for applications to establish framework agreements with potential providers of digital euro components and related services.
We will publish the outcome of the subsequent public tender process on our website.
Preparing the digital euro rulebook
There is currently no single European digital means of payment that is universally accepted across the entire euro area. This forces Europeans – consumers, merchants and banks – to rely on ever more expensive international card solutions for daily payment activities. Fees applied by international card schemes almost doubled between 2016 and 2021 in the EU. And even these international card solutions cannot be used everywhere.
A digital euro would remedy this situation, breaking Europe’s long-held dependency and fostering competition. To this end, everyone in the euro area should be able to make or receive payments in digital euro, irrespective of their intermediary or country of origin – as is currently the case for cash.
This is why we need a digital euro rulebook. We are working on a draft rulebook together with representatives of consumers, retailers and intermediaries. We have recently published a report on our progress in this area.
The rulebook will define a single set of rules, standards and procedures for the digital euro that will ensure its harmonious implementation. This will guarantee, for example, that someone from Finland will be able to pay with digital euro as easily and in the same way in Lisbon as they can back home in Helsinki.
A digital euro would thus provide an alternative infrastructure for all day-to-day payments, which could be used by payment service providers and schemes, such as the European Payments Initiative, Bizum or Bancomat, to roll out instant payment-based solutions across the euro area. This would reduce our dependence on non-European players while fostering competition among European players.
By analogy: the digital euro infrastructure could be seen as a common European railway, on which different companies can operate their own trains and compete for customers without needing to deploy their own private tracks, as is the case with today’s payment system. In addition, private payment service providers could launch new and innovative products or extend their scope beyond existing use cases and domestic markets. This would be a marked improvement on the current situation.
Ensuring the stability of the financial system
There is a growing public preference for digital payments. But central bank money is, for now, only available in physical form – cash. So, if we do not offer a digital euro, we run the risk that central bank money could be crowded out of payments.
Our objective is to preserve the role and share of central bank money in payments, not to displace private money. As clearly stated in the European Commission’s legislative proposal, preserving the role of central bank money should not come at the expense of other objectives, such as protecting monetary policy transmission or financial stability. And we are in any case bound by these objectives, which are at the heart of the ECB’s mandate.
That is why we have included safeguards in the design of a digital euro.
First, as is the case for euro banknotes, digital euro holdings would not be remunerated and hence would not compete with savings deposits. And banks could always offer higher remuneration to retain deposits. This would benefit savers and could in fact increase the deposit base, supporting bank lending.
Second, there will be limits on the amount of digital euro that can be held by individuals. And while businesses and public sector organisations could receive and process payments in digital euro, they could not hold any.
Third, users could pay with digital euro online without prefunding their wallets, by seamlessly linking their digital euro account to a payment account with their bank. This would offer them the convenience of being able to make and receive online payments, even above their digital euro funds and the holding limit. However, if people want to use the offline functionality, they would need to prefund their offline wallet. Just like today with people having to withdraw banknotes in order to use cash.
These features show that a digital euro is being designed as a means of payment and not as a form of investment. And it will preserve the role of intermediaries, contrary to alternative solutions offered by technology firms, which will have no such safeguards.
We have just started to develop the analytical framework and models that would be used to determine the holding limit. This limit will be set to preserve financial stability, having considered the impact on different bank business models and on monetary policy transmission and implementation.
This is a Eurosystem-wide endeavour, and we will engage with banks and other market participants to properly set out the necessary assumptions and define the analytical methodology. We will share our findings with you and the general public. Let me assure you that financial stability considerations are central to our thinking as they underpin our ability to pursue our price stability mandate.
Offering a higher level of privacy in digital payments
Let me now turn to one of the most important design features of a digital euro, namely privacy. We welcome the high standard of privacy and data protection provided for under the proposed regulation. Ultimately, this is for the European co-legislators to decide.
On our side, we are determined to not only protect but enhance privacy in payments.
First, we already provide cash, the payment instrument that offers the highest level of privacy. We are determined to continue to do so, as demonstrated by our ongoing efforts to produce the third series of euro banknotes. We will continue to do everything in our power to ensure people can continue to have the option to pay with it. They value this option, and we are committed to maintaining it for them.
Second, a digital euro will be usable offline. Paying offline in digital euro would be similar to using cash. Just like cash payments, it would require physical proximity and offer cash-like privacy: personal transaction details would only be known to the payer and the payee.
Third, a digital euro would allow people to make online payments with very high standards of privacy, higher in fact than what commercial solutions currently offer. The Eurosystem would not be able to identify people based on the payments they make. We would only see a minimal set of pseudonymised data necessary to fulfil Eurosystem tasks, such as settlement. And digital euro users would retain control over how their data is used by payment service providers, who would have access to customer data to prevent illicit activities, such as money laundering or terrorist financing, and also to fulfil their contractual obligations towards customers, while having to respect all applicable privacy protection regulations, such as the General Data Protection Regulation. In its Opinion on the digital euro, the ECB also suggests considering the possibility of offering increased privacy for certain low-risk, low-amount payments in digital euro in online mode.
Fourth, we would implement state-of-the-art security and privacy-preserving measures to ensure privacy protection. And we will deploy strong governance safeguards. Independent data protection authorities will oversee compliance with EU data protection rules and regulations, which are the strongest privacy and security laws in the world. And provisions in the proposed regulation envisage data protection authorities being consulted at an early stage.
Let me conclude.
The digital euro is a common European project.
First and foremost, it is about preserving everyone’s freedom to use a public means of payment anywhere in the euro area, even as payments go digital. And it is crucial to strengthen our collective resilience and autonomy in a more fragile global environment.
That is why it is so important to set an ambitious pace. But money is trust. The digital euro will need broad support. We are therefore committed to supporting your work as co-legislator. And we are engaging with all stakeholders.
In this spirit, I will continue to be available in order to engage with you throughout the preparation phase and beyond. Together, we can build the euro’s digital future.
Compliments of the European Central Bank
In June 2023 the European Commission put forward two proposals to ensure that citizens and businesses can continue to access and pay with euro banknotes and coins across the euro area, and to set out a framework for a possible new digital form of the euro that the European Central Bank may issue in the future, as a complement to cash. See Proposal for a Regulation of the European Parliament and of the Council on the legal tender of euro banknotes and coins, European Commission, COM(2023) 364 final, 28 June 2023; and Proposal for a Regulation of the European Parliament and of the Council on the establishment of the digital euro, European Commission, COM(2023) 369 final, 28 June 2023.
For more information, see the letter from Piero Cipollone to Irene Tinagli, Chair of the Committee on Economic and Monetary Affairs of the European Parliament, on the “Update on work of digital euro Rulebook Development Group and start of selection procedure for potential digital euro providers” of 3 January 2024.
For more information, see ECB (2024), “Calls for applications for digital euro component providers”, MIP News, 3 January; and the letter from Piero Cipollone to Irene Tinagli, op. cit.
The resulting framework agreements could be used to develop the following digital euro components: i) alias lookup; ii) secure exchange of payment information; iii) fraud and risk management; iv) offline component; and v) a digital euro app and related software development kit. These framework agreements would include only part of the scope of the digital euro service to be offered, as other elements, such as the settlement component, would be sourced in parallel within the Eurosystem.
An ‘EU National’ means any legal entity with registered offices in an EU member state or any natural person that has the nationality of an EU member state.
The eligibility criteria that apply to applicants also apply to sub-contractors.
From 0.08% to 0.15% per transaction, see the Scheme Fee Study by CMSPI and Zephyre in 2020.
The Eurosystem established a Rulebook Development Group for the digital euro scheme to obtain input from the financial industry, consumers and merchants. The Group consists of 22 public and private sector experts with experience in finance and payments. See ECB (2023) “Members of the Rulebook Development Group”, 15 February. Over the past ten months, this group has been preparing a draft digital euro rulebook and will continue its work this year.
See ECB (2024), “Update on the work of the digital euro scheme’s Rulebook Development Group”, 3 January; and the letter from Piero Cipollone to Irene Tinagli, op. cit.
ECB (2022), Study on the payment attitudes of consumers in the euro area (SPACE), December.
See ECB (2023), “A stocktake on the digital euro”, 18 October, which presents the findings of the investigation phase of the digital euro project and is the basis for the work during the preparation phase. See also “Opinion of the European Central Bank of 31 October 2023 on the digital euro (CON/2023/34)”.
See David Andolfatto, Assessing the Impact of Central Bank Digital Currency on Private Banks, The Economic Journal, Volume 131, Issue 634, February 2021, Pages 525–540. The paper finds that the introduction of a central bank digital currency has no detrimental effect on bank lending activity and may, in some circumstances, even serve to promote it. Competitive pressure leads to a higher deposit rate which reduces profit but expands deposit funding through greater financial inclusion and desired saving.
The payments received by businesses and public sector organisations would be transferred immediately to their commercial bank account. Any payments they make would be funded instantly from their commercial bank account.
The waterfall functionality would allow users to make or receive payments in digital euro above the holding limit by linking a digital euro account to a commercial bank account. When receiving a payment, this would allow automated conversion of retail central bank digital currency in excess of a holding threshold into a bank deposit held in a linked commercial bank account chosen by the end user. Similarly, a reverse waterfall would ensure that end users can make a payment even if the amount exceeds their current digital euro funds. Additional liquidity would be pulled from the linked commercial bank account and the transaction would be completed in digital euro at its full value.
The counterfactual to a digital euro is not a benign status quo. In the absence of a digital euro, the emergence of potentially dominant private operators in the digital payments market could have a strong impact on the financial sector. This is a real possibility, as demonstrated by PayPal’s recent decision to launch its own US dollar-denominated stablecoin for use in digital payments. Private providers of payment services, including PayPal, have no incentive to limit the take-up of their stablecoins or the range of services they offer. Quite the opposite: their objective is to expand their customer base and gain market share. See Panetta, F. (2023), “Shaping Europe’s digital future: the path towards a digital euro”, introductory statement at the Committee on Economic and Monetary Affairs of the European Parliament, Brussels, 4 September.
See ECB (2023), “ECB selects “European culture” and “Rivers and birds” as possible themes for future euro banknotes”, press release, 30 November.
While use of and preferences for cash payments are on a declining trend, the importance of cash remains high. Overall, 60% of the euro area population considered having the option to pay with cash to be very or fairly important. See ECB (2022), “Study on the payment attitudes of consumers in the euro area (SPACE)”, December. The Eurosystem cash strategy aims to ensure that cash remains widely available and accepted as both a means of payment and a store of value.
Together with technology experts, the ECB is considering all state-of-the-art security and privacy measures that could be suitable for a mass retail payment product such as a digital euro. Pseudonymisation, clear segregation of data, hashing and other cryptographic techniques would ensure that the Eurosystem would not be able to identify individuals making or receiving payments in digital euro. End users’ payment data would be pseudonymised so that they could not be directly identified and the Eurosystem could not link any of the data it processes to an identified end user. See also ECB (2023), op. cit. (footnote 7).
The design of the online digital euro would provide more privacy than current digital payment solutions in terms of the data visible to the central infrastructure provider for payment processing. In its role as digital euro infrastructure provider, the Eurosystem would not be able to identify the individuals behind digital euro transactions. Only PSPs would know the correspondence between end user actual identity and payments data processed by the central infrastructure provider. This is unprecedented in the area of electronic retail payments and would offer greater personal data protection compared with current payment solutions, which concentrate a large amount of payments data in the hands of infrastructure and scheme services providers, allowing them to connect it to end users.
This would include an opt-in rather than an opt-out for allowing payment service providers to process a user’s personal data for commercial purposes or to provide additional services. The digital euro scheme would ensure that users would be able to make an informed decision and would not be forced to allow use of their personal data (beyond what is necessary for compliance with legal requirements) in order to make full use of basic digital euro services. See ECB (2023), “A stocktake on the digital euro”, 18 October, section 6.2.
See Panetta, F. (2022), “A digital euro that serves the needs of the public: striking the right balance”, introductory statement at the Committee on Economic and Monetary Affairs of the European Parliament, Brussels, 30 March; and ECB (2022), “Digital euro – Privacy options”, presentation to the Eurogroup, 4 April.
See “Opinion of the European Central Bank of 31 October 2023 on the digital euro (CON/2023/34)”.
See Article 5(2) on Applicable law and Article 32(2) on General fraud detection and prevention mechanism, Proposal for a Regulation of the European Parliament and of the Council on the establishment of the digital euro, European Commission, COM(2023) 369 final, 28 June 2023.
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