The association representing some 900 savings and retail banks welcomed the opportunity to provide its views on the possible future issuance of a digital euro but at the same time highlighted the need for further information on key aspects of the project, such as the main purpose of a digital euro, its technical implementation and functionalities, the role for savings and retail banks and other Payment Service Providers, who would perform compliance checks, as well as the interplay with SCT Inst, just to name a few. The current ‘one-size-fits-all’ approach cannot be successful in the long run. In this respect, in its response, ESBG invited the ECB to publish a second report that could provide more concrete information on how a digital euro would work, and to run a second public consultation before deciding to proceed with an implementing phase.

The ESBG response to the consultation addresses the following key themes:

Impact on financial stability

Any new form of currency brings about fundamental challenges and the introduction of a digital euro could have severe impact on the entire functioning of the EU economy. Going forward, decisions need to be taken carefully and with a clear view on the main objectives. A digital euro could jeopardize financial and prudential balances of banks, by weighing on their solvency and profitability, and by increasing their risks and fostering more severe bank runs. In times of financial distress, the demand for a digital euro could increase dramatically, since it would constitute a risk-free asset. This could spur the crisis and even incentivise central bank runs. All these elements may threaten financial stability, to the detriment of customers and citizens. It follows that a digital euro must be designed as a means of payment only, thus avoiding its use as an investment tool. To do so, ESBG and its members recommend the use of limits to holding and a no remuneration policy.

Customer and data protection

A digital euro should not only be easy to use, but also easy to understand. Proper safeguards should be in place to ensure all players are protected. For instance, if offline transactions are implemented, there is the risk of loss of only locally stored digital euro in case the device used for storage is lost or damaged. Most importantly, ESBG stressed that under no circumstances a digital euro should undermine the trust in existing means of payments. Privacy should be safeguarded in any case, and some restrictions or enhanced consent requirements may be necessary to protect consumers from certain business models that may use data on transactions to target ads or offers.

Building on the existing payments infrastructures

Europe is at the forefront of innovation for retail payments, and especially banks and payments institutions, together with the Eurosystem and National Central Banks (NCBs), provide European citizens with the most efficient payments systems available, including via digital means. ESBG believes that allowing banks to maintain their role of intermediaries and distributors of money to the public – as this is currently the case with cash – by building on existing infrastructure will ensure a high level of consumer protection, user experience and trust, as well as financial stability. At the same time, this will ensure the efficiency of the retail payment system and transformation mechanism are preserved. Instead of building a brand-new payment system, the association recommends a digital euro be integrated in the current payment system. Finally, to ensure a level playing field, it is crucial to ensure the principle “same functionalities, same liabilities, same rules”.

ESBG and its member banks stand ready to further engage with the ECB on these strategic issues in the weeks and months to come.