ECB believes digital euro is necessary despite lukewarm response from banks, consumers

While policymakers are divided on whether a digital euro is necessary for the eurozone in a world where cashless payments already exist, proponents of the Central Bank Digital Currency (CBDC) project have a local presence in Europe. The Financial Times reported that it wants a payment system controlled by a bank. report.

Proponents also say that with declining use of cash, a key stabilizing factor in the financial system, consumers will inevitably turn to stablecoins, cryptocurrencies and other alternatives such as CBDCs issued by other sovereigns. Claims it will head towards payment options.

ECB board member Fabio Panetta, who oversees the digital euro project, told the newspaper that the eurozone needs its own “risk-free assets” that can compete with other payment systems, and the only option is for the ECB to create its own. He said it was to issue a digital currency. .

According to Panetta,

“If the sovereign does not propose this, other countries will take their place.”

Non-European companies such as Visa, Mastercard and Apple currently hold a large share of the Eurozone’s digital payments market, and many lawmakers believe the Eurozone is overly dependent on these companies for its payment needs. Are concerned.

Furthermore, there is no single payment system that is widely accepted across the eurozone, and the digital euro is trying to fill that gap, the report said.

Panetta said:

“With the digitization of society, everyone wants to pay digitally. However, there is no single digital payment instrument that can be used everywhere in the Eurozone. , is widely used, but not many stores accept it, even cash is not accepted everywhere.”

Divisions among policy makers

Banking industry reaction to a digital euro has been muted, and lawmakers opposing the project have expressed concerns about the need and whether the benefits are worth the risks to financial stability.

Many of its opponents argue that digital payments are already a reality through commercial banks, making a digital euro payment system unnecessary. The new system could add more “complexity and inefficiency” to payments, the report said.

Tim Adams, CEO of the banking lobby group International Finance Association, told the Financial Times:

“Parallel payment systems could tie capital and liquidity together, and new systems are likely to face the same pain points and will be costly.”

The banking sector is concerned

Bankers, meanwhile, worry that the digital euro will increase the risk of run-ins as it gives consumers a “safe haven” to move their money during a crisis.

In March, the European Banking Union expressed concern about the “substantial risk” of running a digital euro run, and lawmakers considered imposing a limit on digital euro holdings to address the issue.

Moreover, the digital euro will likely be circulated primarily through commercial banks and held in separate apps operated by the banks. Fundamentally, these digital euro deposits are in principle no different from traditional cash deposits at banks.

For this reason, in the banking sector, banks themselves will have to bear the costs of the project, as the ECB intends to make basic payments free for all consumers, in addition to making them responsible for deposits. This has led to concerns that

The EBF has proposed setting aside public funds to support the digital euro so that banks do not bear unnecessary costs.