Maintaining the freedom to choose how we pay


INSIGHT
Published
Jun 25th '24
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A digital euro would combine the convenience of digital payments with cash-like features. ECB Executive Board member Piero Cipollone explains how a digital euro would enhance Europeans’ freedom of choice when deciding how to pay.

 

Freedom lies at the heart of the European Union’s principles. Every EU citizen is free to live, work, study and do business in any EU Member State.

 

The euro plays a key role in making this possible. We can use it to buy or sell goods and services anywhere in the euro area.

 

In providing euro banknotes, the European Central Bank (ECB) plays a crucial role in upholding these freedoms. Most Europeans want to have cash as a payment option and many view it as essential to their freedom: cash is easy to obtain, inclusive, universally accepted across the euro area and offers the highest level of privacy.

 

But we do not yet have a cash equivalent for making digital payments, which limits our freedom in an increasingly digital age.

 

Sometimes we can use national options, such as bank cards or digital wallets, to make electronic payments in shops. But in most euro area countries, these national solutions do not exist. And even when they do, they often do not work when shopping online, splitting bills among friends or travelling in the euro area. This forces us to rely on non-European cards or electronic payment solutions – although even these are not always accepted – and to use multiple payment methods.

 

To remedy these shortcomings, the ECB is working on a digital euro. We remain fully committed to cash, but we want to bring its benefits into the digital world. A digital euro would give consumers an additional payment option that complements cash. It would be up to them to decide whether to use it.

 

A digital euro would combine the convenience of digital payments with cash-like features. Like banknotes, it would offer Europeans the freedom to use a single public means of payment accepted throughout the euro area for digital payments in shops, on e-commerce websites or person to person. It could also be used offline, making transactions possible even when network coverage is limited or in the event of a power cut.

 

The digital euro would make it easier for euro area firms to offer pan-European digital payment solutions. This would strengthen competition in a market currently dominated by a few non-European players, thereby lowering costs for merchants and consumers. And it would reinforce Europe’s strategic autonomy and resilience. In a world that is increasingly divided and exposed to the dominance of large technology firms, we have a responsibility to ensure that Europeans are always able to make affordable and safe payments effectively.

 

The digital euro would offer greater privacy than that typically offered by existing commercial solutions. For offline payments, only the payer and the payee would have access to the transaction details. For online payments, we would use the latest privacy-enhancing technologies. All data would be pseudonymised and kept within the EU’s jurisdiction, thus enjoying the highest privacy standards in the world. And our compliance with data protection rules would be supervised by independent data protection authorities.

 

Free of charge for basic use, a digital euro would leave no one behind, including those with low digital and financial skills and vulnerable groups. An app would offer everyone an inclusive and accessible means of payment.

 

More than just a payment option, a digital euro would bring Europeans closer in an increasingly digital and unstable world. It would make our lives easier, while preserving our freedom of choice.

 

A year ago the European Commission put forward the Single Currency Package to protect cash payments across the euro area and to set out a framework for the possible issuance of a digital euro, which will only be considered once European legislators have adopted this framework. We welcome the ongoing democratic debate and we will continue engaging with all stakeholders.

 

As the world around us changes and geopolitical risks grow, we need to keep up the momentum. Together, we can ensure that the euro – our single currency – is ready for the digital era and continues to underpin the freedoms Europeans hold dear.

 

Source: European Central Bank (ECB). Author: Piero Cipollone

 

This article was published as an opinion piece in media outlets across the euro area.

 

The views expressed in each article are those of the authors and do not necessarily represent the views of the European Central Bank and the Eurosystem.

 

Notes: 

  1. ECB is grateful to Kristian Tötterman, Julian von Landesberger and Mihail Medvedi for their contribution to this blog post.
  2. Excess liquidity refers to the amount of central bank reserves held by commercial banks over and above minimum reserve requirements.
  3. Repo refers to repurchase transactions (short-term loan), where one party sells a financial asset with a simultaneous commitment to repurchase that asset at a future date. Repo is a form of secured cash lending against collateral and represents an important liquidity redistribution channel in the euro area.
  4. When banks pledge financial assets defined by regulation as “non-high quality liquid assets” (non-HQLA) as collateral in a repo transaction, they can convert them into reserves (which are of the highest quality and liquidity), therefore improving their liquidity coverage ratio (LCR).
  5. In the euro area banks traditionally held around 30% of publicly placed covered bond issuance. This share temporarily decreased while the Eurosystem increased its covered bond holdings through the CBPP3. Banks have now quickly recovered their market share by playing an overwhelming role as an investor from 2022 to early 2024, as they absorbed around 70% of net issuance of covered bonds. German bank treasuries historically show a particular preference for this type of securities.

 

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