Evelien Witlox, project director for the digital euro at the European Central Bank, discusses how the proposal is progressing, how the currency would work in practice, and what the key concerns are at this stage.
The EU must maintain ‘urgency’ on the digital euro process to avoid falling behind global competitors and provide a common means of payment for the 20 members of the eurozone, Evelien Witlox, its project manager at the European Central Bank (ECB), told Euronews.
“If you look at the current landscape, we see a fragmentation of payment solutions, and the ones that come closest to covering the whole of Europe are non-European,” Witlox said from her office in Frankfurt, Germany.
To date, there is no pan-European digital payment solution, and 13 of the 20 countries in the eurozone don’t have a national card scheme, relying instead on international providers such as Visa or Mastercard.
Given the high dependency on foreign players, the declining use of cash, and the growing popularity of cryptocurrencies, the ECB launched a project in October 2021 to study the issuance of its own central bank digital currency (CBDC), the so-called “digital euro”.
But before the ECB decides whether to launch the CBDC, the EU institutions need to finalise the legal framework for such a project to become a reality – nearly 17 months after the Commission’s proposal and following an EU election, neither the Parliament nor the Council have taken a position on the dossier.
“Discussions have progressed and I can only reiterate the urgency to keep sufficient pace in this process so that we can ensure that the digital euro will be there when we really need it,” Witlox argued about the ongoing legislative process in Brussels.
The ECB project manager stressed that while it’s important to take the time to prepare the digital euro carefully, it’s also important to move fast enough – especially as other global players such as the UK and China are also exploring the same possibility.
“We are still at the forefront of the development [of a CBDC],” Witlox argued, adding that “it would indeed be a pity if we lose this opportunity to shape what we think a retail CBDC should look like”.
As for when Europe might see a digital euro, there is no concrete deadline at this stage, as the ECB will depend on the progress of the legislative process in Brussels.
Who is in favour and against the proposal?
The digital euro was proposed in 2021 to serve as an alternative means of payment for consumers and businesses — but since then, its design and added value have raised concerns and scepticism among some stakeholders.
While consumer organisations are mainly looking at financial inclusion and privacy, European banks are wary of the potential impact on bank deposits and the costs and infrastructure needed to launch such a project in the eurozone.
The Frankfurt-based institution has already stressed that the digital euro will not be a savings instrument for large sums of money. That means it will not be remunerated – deposits in digital euros will not earn interest – and will be subject to a holding limit yet to be determined.
“Whatever holding limit is eventually agreed would find the right balance between the freedom for people to hold central bank money and ensuring financial stability,” Witlox said.
The ECB’s project manager recalled that banks – and non-banks – will be key players in the roll-out of the digital euro.
“Merchants will pay a competitive fee to their banks for accepting digital euro payments, which ensures distributors are also fairly compensated for their work”. Same as for euro banknotes, the ECB will absorb some costs so that it can be used free of charge by citizens.
As for privacy concerns, in the online version of the digital euro, everything will go through the intermediaries – banks or other payment service providers – and they will have to go through the same checks as for any other transaction, including fraud checks and anti-money laundering.
In the offline version, however, transactions don’t go through a network, which ensures a higher level of privacy and is closer to the benefits of cash, the ECB project director argued.
“There will be a separate holding limit for the offline version to protect it from being misused and in line with anti-money laundering and terrorist financing regulation,” Witlox said.
The draft legislation also includes some provisions to ensure the financial inclusion of all users of the digital euro, including a physical card, an offline version, and an institution to top up the card.
“In Italy, for example, you could imagine that these institutions would be the post offices, which anyone could go to if they need face-to-face support to open a digital euro account or start using it,” Witlox concluded.
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