Honourable Member of the European Parliament,
dear Mr Zijlstra,
Thank you for your letter regarding the potential costs of the digital euro project, which was passed on to me by Ms Aurore Lalucq, Chair of the Committee on Economic and Monetary Affairs, accompanied by a cover letter dated 9 October 2024.
In your letter, you raise the question of how the digital euro could be cheaper for merchants than private alternatives. I would like to highlight that international card schemes currently account for 64% of card payments in the euro area. These can be very costly for merchants, who collectively pay a significant amount each year to international card schemes. And the cost is mostly borne by smaller merchants, who can incur charges three to four times higher than larger companies. As a result, merchant associations strongly support the digital euro.
The Eurosystem would bear the costs of establishing the digital euro scheme and infrastructure, as it does for producing and issuing euro banknotes – which, like the digital euro, are a public good. This would allow acquirers to offer competitive tariffs to merchants. By providing a true alternative to international card schemes, the digital euro would also put European merchants in a stronger position to negotiate better conditions with other, currently dominant providers. The digital euro would thus help support a competitive European payments market, which at present tends to be dominated by a few non-European players. Without the digital euro, the market could become even more concentrated, potentially leading to even higher costs for merchants.
The European Commission’s draft legislative proposal for the digital euro currently includes safeguards for merchants by proposing a cap to their fees. As such, merchants would not pay higher fees for the digital euro than for a comparable digital means of payment. This prevents payment service providers from exploiting the mandatory acceptance of digital euro by merchants as legal tender.
In your letter, you also raised the question regarding the cost of the digital euro project. We are committed to keeping development and potential operational expenses as low as possible, while delivering a digital euro that brings value to consumers and merchants.
By reusing existing standards and building on established infrastructures as much as possible, market participants could integrate the digital euro in a cost-effective way. The Rulebook Development Group, where all stakeholders are represented, is taking this principle into account in its drafting of a single set of rules and standards for the digital euro.
The Eurosystem’s costs will depend on the components and related services that would need to be developed and our rigorous procurement process ensures that we can obtain the best value for money. At the start of this year, we initiated the process of selecting potential providers. We issued calls for applications to establish framework agreements for five digital euro components expected to be operated by providers outside the Eurosystem. Other components, such as payment settlement, would be sourced from within the Eurosystem. The calls for applications included ranges of estimated total value for the framework agreements with external providers, determined by the responses received in the ECB’s market research carried out in January 2023. These estimated costs not only cover the development of the component, but also their operation – a total period of ten years for three components, and 15 years for the remaining two. These ranges also include significant buffers to avoid new procurement processes having to start soon. We are currently assessing offers from potential providers, and will negotiate with them to finalise framework agreements. For the time being, the ECB has no financial commitment to these potential suppliers and only bears the administrative costs related to conducting the tender procedures. As per regular ECB practice, the outcome of the public tender procedure will be published on the ECB’s website, and we will inform all the relevant stakeholders, including the co-legislators.
Please note that the Eurosystem would not charge or benefit from any digital euro transaction fees. As mentioned above, the Eurosystem would only bear its own costs, as it does for the production and issuance of banknotes. In the case of banknotes, these costs are more than compensated by the generated seigniorage. We can expect a similar outcome for the digital euro, but this would ultimately depend on the actual amount of digital euro held by users. Any net profits generated by digital euro seigniorage would be distributed to the euro area national central banks, in line with Article 33.1 of the Statute of the ESCB.
It is important that the digital euro reflects its nature as a public good. Therefore, it would be free for basic use for consumers and cost-efficient for merchants. Mr Cipollone and I remain committed to engaging regularly with the European Parliament on this topic and more broadly on the digital euro. We appreciate all the work that the ECON Committee has done so far, and. Going forward, the ECB stands ready to provide continued technical support to co-legislators as needed.
Yours sincerely,
[Signed]
Christine Lagarde
Read original letter here.
Compliments of the European Central BankThe post ECB | Letter from the ECB President to Mr Auke Zijlstra, MEP, on the digital euro first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.
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