The European Central Bank (ECB) and European Commission are beavering away at the technical details for a digital euro – but among political decision-makers it appears hard to muster much enthusiasm for the putative central bank digital currency (CBDC).
New laws to underpin the CBDC propose a raft of answers to questions on privacy, offline use and distribution, and now seem set to be published next week – but, if the technical issues are ripe, the political ones aren’t.
Perhaps understandably, the bill focuses on what the CBDC should not do – banning holdings from getting too large, or being paid interest, in an explicit bid to stop the CBDC competing with savings or investment.
What’s missing, politicians now complain, is the positive case for what the CBDC should be there to do – which may be responsible for some of the late-stage hiccups in producing the formal legislative proposal.
At a meeting last week, euro finance ministers discussed “the importance of developing a compelling and clear narrative regarding what would be the added value of this development and the difference that it would make to the lives of the citizens of Europe and to the commercial activity of businesses,” said Ireland’s Paschal Donohoe, who chaired their talks.
Donohoe has been broadly positive about the project, saying in a March OpEd that issuance was inevitably needed to protect the euro’s value and sovereignty from foreign rivals. But ministers have also stressed the project must command public support – and now, it seems, want reminding about why the project should go ahead in the first place.
Proponents at the ECB say the digital euro could become a monetary anchor, ensuring citizens can still get access to state-issued money in a digital era; others go further and argue it could be a way of bypassing the unstable commercial banking system altogether.
Uphill struggle
Yet making that case to citizens can be an uphill struggle. An ECB focus group last year found that few in the general public, even the tech-savvy ones, had heard of a digital euro, or knew much about it.
That skepticism is shared in the European Parliament, the directly elected arm of the EU legislature that would also have to agree to any underpinning laws. A recent debate revealed a wide range of concerns – from fears of replacing physical cash, to worries it could accompany a Chinese-style social credit system. (The commission says the digital euro would complement cash as legal tender, and isn’t a “big brother” initiative).
Other lawmakers simply wonder what the point is.
“If we are just duplicating the existing payment infrastructure with the digital euro, I do not see a strong case,” Markus Ferber, economic spokesperson for the largest political grouping in the European Parliament’s economic affairs committee, told CoinDesk in an email – even if capabilities relating to blockchain or smart contracts would be a boost. “A lot depends on the details and the precise design elements.”
“The European Central Bank and the European Commission have yet to make a clear and convincing case of why we need the digital euro,” added Ferber, from the German center-right CSU party. “Vague notions of ‘monetary sovereignty’ do not cut it for most people.”
The problem may lie in the relative sophistication of the EU’s existing payment networks, which already offers regular citizens a host of digital ways to pay.
Officials aren’t comfortable that in practice they usually involve U.S. companies – Visa, Mastercard, potentially in future big tech – putting the bloc at the mercy of erratic U.S. sanctions policy. But in practice, citizens in countries like Belgium can go from one month to another without touching a banknote, thanks to smartphones, cards and instant transfers. What else does a digital euro bring?
Confusion
Some believe that confusion is a deliberate attempt by commercial banks to head off rivalry from the state.
Commercial banks “hate this project, because it creates competition with their private payment methods,” Anna Martin of consumers’ organization BEUC told a Brussels event on Monday.
“This narrative is already floating about in the public sphere that it will not bring added value,” said Martin, who is Financial Services Officer at the lobby group. “If we have a public payment method, we have something which brings us additional privacy, we have something which brings us additional financial inclusion, and if we get this right, then we should go ahead.”
With competing visions about what the digital euro is for, from the role of blockchain to the role of banks, it’s unclear if the CBDC can command a coherent political consensus ahead of European elections due in June 2024 – but some are still optimistic.
“My educated guess is that a majority in the parliament will support the digital euro proposal in the end,” said Ferber. “But things would be made a lot easier if there were a stronger case for the project.”
