Ulrich Bindseil, the Director General of Market Infrastructures and Payments at the European Central Bank (ECB), participated in a recent online discussion focusing on the next steps for the digital euro. The discussion was hosted by the Official Monetary and Financial Institutions Forum, a think tank primarily concerned with central banking and economic policy.
“We want to make people’s lives easier in a concrete sense, but in an abstract sense, we want to preserve this coexistence of central bank money,” said Bindseil of the ECB’s
recently concluded digital euro investigatory phase.
The talk comes shortly after the EU’s ‘digital euro’ project announced the conclusion of its investigatory phase, thus kicking off the preparation phase of the project. This next phase is expected to last for two years and will be centered around finalizing the ‘digital euro rulebook,’ as well as selecting providers who might develop the infrastructure required to administer a European central bank digital currency (CBDC).
Though the digital euro project is in a relatively advanced planning stage, it’s far from a done deal. When the design and practical considerations are worked through over the next two years, a final proposal will be presented to the European Council, which will make the final decision on whether a digital euro should go ahead.
Nonetheless, the groundwork is taking place now, and concrete design decisions have already begun to come together, as demonstrated by both Bindseil’s discussion and the recently released report setting out the outcome of the investigation phase.
On the design decisions made so far, Bindseil said:
“[A digital euro] should cover all the main use cases. Not only use cases which are not well covered but exactly the use cases that are also covered by the private industry, because they are the largest use cases.”
“It should be widely accessible. That’s in line with the digital euro legislation. All euro area payment service providers should offer it – every bank should offer it, every non-bank payment service provider (PSP) in this business should offer it, and also all euro area merchants should accept it through an effective legal tender provision.”
Bindseil also spoke of the ‘waterfall’ concept that has found its way into the digital euro design. There will be a cap on funds that can be held in a digital euro wallet—for argument’s sake, he set it at 3,000 euros (Bindseil noted that work would need to be done on ensuring that specificities, such as limits, need to reflect their local market within the EU). If a wallet receives a payment of 5,000, then assuming the user has linked their commercial bank account, the surplus of 2,000 euros will be sent to that account. Likewise, if a user attempts to make a payment in excess of the limit, then funds can be drawn from the commercial bank account in order to supplement the purchase.
He also said that the ECB has focused on the digital euro’s ability to function offline and its privacy features—two aspects of a potential CBDC that have rankled feathers in certain corners of the digital asset industry.
“Offline aims at this future scenario where cash is used less and less. Not because we, as central bank, wants to phase it out, but because people use it less and less. Offline would fill a gap in terms of coverage, and also resilience toward temporary loss of connectivity or electricity.”
On privacy, Bindseil said that the ECB has tried to push the ‘frontier of privacy’ further beyond that offered by private solutions—in part made easier because the Eurosystem, which is the European system partially in charge of promoting the smooth operation of payment systems in Eurozone member states and with which the CBDC is expected to be integrated, is already a privatized system.
“In the payment process, we are working on maximizing privacy. Of course, privacy may have its limits in the view of the legislators who maintains similar or partially similar treatments in analogous terms as other private electronic means of payment.
“And, of course, also the safety and resilience of the process must be guaranteed. We want to maximize privacy: we foresee the possibility of conditional payments. Money should never become conditional.”
This last point speaks to a conversation that is growing alongside the push for CBDCs, which is based on concern that any CBDC would inevitably be used to track individuals and, when reliance on the digital euro reaches is sufficiently strong, would be used to control individuals spending habits.
This came up a few times in the discussion, and it’s clear from what Bindseil said that the ECB is keenly aware of the concerns and is equally aware of the need for the ECB to communicate the digital euro project effectively to make clear that those concerns are unfounded.
“We want to make very clear that’s not the case: not about the digital controls, and one unit of money will always be a unit of money there. It is not programmed in the sense of having specific properties depending on how one unit is programmed. What we want, of course, is what has been accepted for a long time is to be able to trigger payments through APIs, and therefore, whatever is on the other side of the API can be any logical combination of conditionality.”
Bindseil was also joined by four panelists from the private sector, each of whom gave some comment and asked a question of Bindseil. These were Victoria Cummings, chief legal and regulatory officer at RTGS.global, a cross-border settlement platform; Wolfram Seidemann, CEO at G+D Currency Technology; Jerome Goblet, product manager at payments provider Worldline; and Simon Chantry, co-founder and chief information officer at payment system provider Bitt.
Wolfram Seidemann picked up on the point of effectively communicating the digital euro project, given the variety of stakeholders involved. He asked Bindseil what steps are being taken to that end.
A lot of work is still in front of us. What are your next steps toward having a convergence understanding of the digital euro in the digital euro ecosystem? We have a lot of stakeholders involved.
“There’s still some resentment against the need in general of digital euro that continues, and we have to repeat and refine and improve our explanations both to experts and to the large public,” said Bindseil.
Goblet asked Bindseil about the impact that a successful digital euro project would have on private payment providers, quoting Binseil’s own earlier quip back to him: that the digital euro should be successful but not too successful. Goblet raised the Brazil example, where a central-bank-sponsored digital payments initiative (falling short of a CBDC) called Pix has grown astronomically and has eclipsed credit and debit card volumes.
“I think it’s difficult to give now a universal answer,” said Bindseil.
“The phasing in will take some time. You refer to Pix in Brazil, which took off really quickly. Let’s see how quickly it goes with the digital euro. We would also not be disappointed if it goes a bit slower than Pix; it can take time. Then I would say we are then in a dynamic environment; we will discover lots of things in practice.”
“You know, there are some examples, if I may give one, of firms which are close substitutes in electronic payment industry. Take the global cards schemes. They are pretty close substitutes, but they coexist now without the network effect of one somehow crowding out the other – because they found an interoperable coexistence.”
As for the next steps, Bindseil announced that the preparation phase— which formally kicks off November 1—will be further broken down into two stages. The first phase focuses on preparing to develop the digital euro rulebook, the selection of possible providers, and technology and legislative process support. As previously announced, this phase will take two years and conclude in October 2025.
The subsequent phase will begin in November 2025, subject to the EU Governing Council’s approval. In this phase, the ECB will focus on the development and preparation of a roll-out of specific digital euro use cases.
See the full discussion here.
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.
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