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The digital euro will be the ultimate payment solution for any occasion at any time, a new presentation by the European Central Bank (ECB) says.

Delivered by ECB board member Fabio Panetta at the European Banking Federation Executive Committee Meeting in Frankfurt, the presentation delved into what the digital euro will be, its incentives, design model, compensation, and more.

ECB says the central bank digital currency (CBDC) will make users’ life easier and increase financial resilience. It will increase e-commerce revenues and lower overall costs for intermediaries; promote financial inclusion and be usable anytime, anywhere for citizens; and bring higher conversion rates for merchants.

Financial stability remains at the heart of the ECB’s considerations while developing the digital euro. For this, it retains three important tools:

  • Design features into the digital euro that reduce excessive usage
  • A distribution model that ensures intermediation
  • An ability to steer liquidity conditions to the required extent

To ensure that the CBDC can be used across the region, the ECB plans to establish a set of common rules, standards, and procedures.

Days after Panetta unveiled the presentation, a new paper before the region’s finance ministers on March 13 reveals that merchants will be obliged to accept digital euro payments.

The paper notes that the digital euro will be assigned a legal tender status, just as with banknotes and coins. This status implies “a legal obligation for (certain) payees to accept payments in digital euro … thereby increasing its network effects, and potentially affecting its distribution.”

The paper was drafted by the secretariat of the Eurogroup, a group composed of the region’s finance ministers. They recently met to discuss the digital euro, inflation, fiscal policy guidelines for 2024, and more.

While it proposes a legal obligation by merchants to accept the CBDC, the Eurogroup is open to certain exceptions that would allow “proportional application … balancing the principles of contractual freedom and mandatory acceptance.”

The digital euro scramble

The EU has been in a rush to develop the digital euro in response to the continued influence of Western and Eastern payment giants in the region. ECB president Christine Lagarde has previously noted that two-thirds of the region’s card payments “are run by companies with headquarters outside the European Union.”

VISA (NASDAQ: V), American Express, Mastercard (NASDAQ: MA), UnionPay, and Alipay are the top global payment processors. The first three are American, while the other two are Chinese, which has greatly concerned the EU.

“The ECB is worried that the euro zone will end up in a geopolitical and economic sandwich position between the big tech companies of the USA and the payment systems of China without a digital euro. Right now, Europe lacks digital platforms,” Guido Zimmerman, the senior economist at LBBW, Germany’s largest state-backed Landesbank lender, opines.

Recent developments, such as the war in Ukraine, have only strengthened the resolve of the EU to develop its regional CBDC. This digital currency could be here within the next two years, ECB officials have previously claimed.

As per Panetta’s latest presentation, the regional bank is currently evaluating compensation models, access to the CBDC ecosystem, other value-added services, and advanced functionalities.

“The goal, I think it is a fixation for some, of ensuring the sovereignty or power of the EU, is the main driver for the digital euro in Brussels, and in Frankfurt,” Daniel Gros, a German economist who heads the European think tank CEPS, says.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

Watch: BSV On-chain Ecosystem Development in Europe

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