The European Central Bank gives the green light for the next steps towards a digital euro. But before he comes, there are still many questions unanswered. Criticism also comes from the banking associations.
The European Central Bank (ECB) has been weighing up whether it wants to introduce the digital euro for two years. Now she has announced that she wants to go into the so-called preparation phase. This is also scheduled for another two years. During this time, according to the ECB, the foundation stone should be laid for the possible introduction of the digital euro. Among other things, “the set of rules should be finalized and providers selected for the development of the platform and infrastructure,” the central bankers said.
From the perspective of ECB boss Lagarde, we must “prepare our currency for the future.” She continued: “We see a digital euro as a digital form of cash with which all digital payments can be made free of charge and which meets the highest data protection standards.”
Supplement to cash
The digital euro, as the ECB has in mind, is not intended to replace cash, but to complement it. The top monetary authorities at the European Central Bank emphasized this when the next phase of the project was kicked off.
But there are still many question marks about what exactly it should look like, the digital euro. Banks could obtain it from the central banks like cash. Consumers would receive it credited to a digital wallet, a so-called wallet, and would be able to pay in a matter of seconds around the clock, for example using their smartphone – even if they do not have an internet connection.
German banks are fundamentally optimistic
Representatives of German banks are monitoring developments closely. In principle, the ECB’s decision to prepare a digital euro is seen as positive, according to the German Banking Industry, the umbrella organization of the five major banking associations in Germany. Jens Holeczek, group leader for digital payment systems at the Federal Association of German Volksbanks and Raiffeisenbanks, sees it as positive that the ECB wants to make the currency fit for the future.
But he also asks the question of what exactly the digital euro should ultimately be: “Is it digital money, i.e. a digital supplement to cash, we would like that. Or is it a fully-fledged payment method operated by the state? “It then goes well beyond a digital form of money and calls into question the division between the state and the private sector and you have to look critically at what that means.”
Does the ECB intervene? Business model of the banks?
The former economist and economics professor at the University of Würzburg, Peter Bofinger, also considers this question to be crucial when implementing the digital euro. In a report for the Austrian Economic Chamber, the economist warns against a fundamental intervention in the “order of our monetary and financial system”.
With the digital euro, the European Central Bank is entering a business area that was previously operated purely privately by banks and payment service providers. The Federal Association of German Banks, the Association of Private Banks, sees it similarly.
Tobias Tenner, Head of Digital at the Banking Association, sees a possible conflict of interest: “The distribution of roles would be redistributed depending on what the ECB is planning. Because the ECB not only comes with the raw material, as is the case with cash today, but the ECB comes with it the digital euro with a payment system.” In doing so, it is entering a market in which there is already great competition.
Dominance of the USPayment service provider break
However, the latter is an important argument for the introduction of the digital euro. The idea behind this is to establish a European counterweight in payment transactions to the dominant American providers such as Visa, Mastercard, GooglePay and ApplePay or Paypal.
The ECB says: “The digital euro would promote resilience, competitiveness and innovation in European payment transactions. It would ensure that there is a Europe-wide payment solution for the euro area with a European regulatory framework.”
Many people see sovereignty in European payment transactions as an important goal. “When it comes to digital payments, people need to become more independent of the commercial interests of a handful of international corporations,” said Ramona Pop, board member of the Federal Association of Consumer Organizations (vzbv).
The benefits of the digital euro for consumers are unclear
The question, however, is whether the digital euro will also be accepted as a means of payment, given that many people already use digital payment solutions via smartphone or card. From the perspective of the Federal Association of German Banks, it is unclear what exactly the digital euro will bring to consumers, other than another way to pay.
Digital expert Tenner from the banking association said opposite tagesschau.de: “Today we already have very efficient payment transactions, which are primarily sponsored by the private sector, and what the ECB is currently planning does not offer any real added value, benefit or purpose for the end customer. It is associated with gigantic costs for a completely new infrastructure and that only makes sense if there is essential added value for all sides.”
The question of who will ultimately bear the costs is still open. According to Bundesbank board member Burkhard Balz, paying with the digital euro should not involve any fees for consumers. “Just like with cash, they shouldn’t have to bear any costs,” Balz told the “Frankfurter Allgemeine Zeitung”.
Nagel: Paying with digital euros in five years
Bundesbank President Joachim Nagel believes it will be several years before payments can be made with a digital euro. “This is a big IT project. I expect that we will be paying with the digital euro in around five years,” said Nagel Deutschlandfunk. Until then, there is still plenty of time for the ECB and everyone involved in the process to collect and submit ideas and suggestions.
From the point of view of economics professor Bofinger, there is already a good approach at the European level: the European Payments Initiative, or EPI for short. “They’re trying to build a European payment system that doesn’t require payment service providers like credit card companies.”
Many questions still remain unanswered
From the perspective of the German banking industry, the digital euro could be a good complement to the private sector initiative. Jens Holeczek, group leader for digital payment systems at the Federal Association of German Volksbanks and Raiffeisenbanks, emphasizes: “What the ECB once promised, to create the digital euro as a raw material, as digital money that can be used by the private sector, would be a good and correct one Commencement.”
However, it will be difficult if the digital euro ensures that all other providers disappear from the market. Whatever the digital euro looks like in the end, before the digital version of the European common currency actually comes, a legal basis at EU level is first necessary.