German banks want commercial banks to lead in digital euro launch

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The Association of German Banks has urged the European Central Bank (ECB) to allow commercial banks to lead in developing the digital euro.

The association sought to explore “the next step in the evolution of money,” as stated in the recently released paper, which defined the central bank digital currency (CBDC) as the next logical iteration for payments that will complement the use of cash and other digital forms of payment.

The bankers noted that a digital euro could offer both consumers and the continent’s financial sector a range of benefits, but only if properly launched. To achieve this, the association opined that commercial banks should bring the digital euro into circulation because of the existing relationships between the financial institutions and their customers.

“Based on today’s business relationships, commercial banks know best what their customers need from digital money – and this applies to both consumers, as well as the companies banks are doing business with,” read the paper.

Going forward, the bankers suggest that the ECB should permit commercial banks to experiment with the use cases for the CBDC, set limits that retail users can store, and give them the right to prevent entities from using it as a store of value. The paper suggests that the moves are necessary to solve the dilemma of bank disintermediation stemming from widespread CBDC use.

To ensure a smooth integration into the current financial system, the bankers say that the ECB should ensure the digital euro is a better form of cash for retail customers. One way to ensure that it seamlessly slots in with existing financial systems is to meet European data protection requirements and possess features like offline payments without the logistical problems associated with cash payments.

The ECB has been investigating the viability of the digital euro since 2021, taking things up a notch with a two-year public consultation with a final launch sometime in 2026.

No risk, no reward

For all the benefits offered by the launch of the digital euro, there remain several worrying risks identified by the Association of German Banks. Topping the list is the threat from disintermediation which the association says it will combat using several countermeasures.

More pressing are the risks stemming from falling revenues which may hinder the commercial banks’ ability to offer loans to their customers. Another worry is the dangers of weakening customer/bank relationships, which the bankers say can be “effectively mitigated against with the right framework conditions.”

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