Tag Archives: digital euro

Panetta: A digital euro to meet the expectations of Europeans

Introductory remarks by Fabio Panetta, Member of the Executive Board of the ECB, at the ECON Committee of the European Parliament

Frankfurt am Main, 14 April 2021

Madam Chair, honourable members of the Committee on Economic and Monetary Affairs,

Let me start by thanking you for inviting me to report on the outcome of the ECB’s public consultation on a digital euro. We are publishing our analysis of the responses we received on our website today.

A digital euro can only be successful if it meets the needs and expectations of European citizens. This is why our consultation will provide valuable input for the Eurosystem’s decision – this summer – on whether we should start a digital euro project. The consultation will also inform future work on the design of a digital euro if a project is launched.

For the participants in the public consultation, the most important features of a digital euro are privacy, security and broad usability. In my remarks today, I will discuss how we can meet their expectations. But first let me share with you the main findings from our consultation.

Main findings from the ECB’s public consultation

We received more than 8,000 replies, an all-time record for ECB public consultations. The overwhelming majority of the responses came from citizens, while 460 were from businesses and professionals in the payments sector.

The consultation was open to everyone, and participants contributed on their own initiative. This means that the sample of respondents is not statistically representative of the European population. Nonetheless, the breadth and depth of the responses offer valuable insights.

Our report discusses the results in detail. Today I will therefore simply highlight the key findings.

Privacy was considered to be the most important feature of a digital euro in about 43% of replies. Nevertheless, respondents recognise the need for the digital euro to have features that prevent illicit activities like money laundering or terrorist financing. Other important characteristics include the possibility of using the digital euro for secure payments (ranked first by 18% of the respondents), throughout the entire euro area (emphasised by 11% of the respondents), without additional costs and offline (underlined by 9% and 8% of the respondents respectively).

Citizens and professionals agree that a digital euro should be integrated into existing payment infrastructures. The vast majority of respondents believe that banks, payment institutions and other intermediaries have an important role to play in providing services related to a digital euro. They suggest, for example, that a digital euro should be integrated with mobile and online payments and banking services. They expect the additional services that would build on the basic payment functionalities of a digital euro to trigger innovation and efficiency. A sizeable share of participants also highlight that the digital euro should make cross-border payments faster and less costly. And more than half of respondents are willing to test, adopt or contribute to the design of a digital euro in order to make it an effective means of payment.

Privacy first

As I have already mentioned, privacy emerges as the most important feature of a digital euro. Protecting users’ personal data and ensuring a high level of confidentiality will therefore be a priority in our work, so that the digital euro can help maintain trust in payments in the digital age.

At the ECB we started to explore privacy in digital payments early in our work on a central bank digital currency, and we will continue to do so through further analyses. The results of our technical experimentations are available on our website and summarised in to my remarks today.

Let me emphasise, first of all, that a digital euro would in fact increase privacy in digital payments. As a public and independent institution, the ECB has no interest in monetising or even collecting users’ payment data. A digital euro would therefore allow people to make payments without sharing their data with third parties, other than what is required by regulation. This differs from private payments, where services are generally offered in exchange for personal data that are then used for commercial purposes.

Privacy is an important prerogative because it influences people’s personal lives and fundamental rights. It must nonetheless be carefully assessed against other important considerations in the general interest. Digital euro payments could guarantee different degrees of privacy, involving different trade-offs with other policy and regulatory objectives such as the need to combat illicit activities. Such trade-offs also characterise traditional means of payment, which provide various degrees of privacy, ranging from anonymity for cash payments to full disclosure for digital transactions that require documentary verification and monitoring of operations.

In theory, digital euro payments could be anonymous if users’ identities were not verified when they access digital euro services. But this anonymity would provide fertile ground for unlawful activities and could prevent compliance with regulations on anti-money laundering and combating the financing of terrorism.

Anonymity would also prevent limits being imposed on the use of digital euro when necessary – for example to safeguard financial stability and banking intermediation by preventing excessive capital flows or excessive use of the digital euro as a form of investment.

Even if users have to identify themselves when they first access digital euro services, different degrees of privacy can still be maintained for their payments. Certain transactions could be conducted without the payment details being shared with third parties. For example, if low-value offline payments were offered, they could be settled between the payer and payee without any data being shared with intermediaries.

For electronic and large-value transactions, details should be available to intermediaries. But privacy enhancing techniques could still ensure a high level of privacy. For example, the identity of users could be kept separate from payment data, allowing only financial intelligence units to obtain this information and identify the payer and payee when suspicious activity is detected.

Our preliminary experimentation on a digital euro is showing promising results on how technology can be used to protect user privacy without relaxing standards against illicit activities.

But there could also be cases where transparency of payments would be in the interest of consumers. For example, it may be necessary to verify a payment after it has been conducted to prove that the transaction took place or if a refund is required. In any event, cash would remain available alongside a digital euro. Consumers would be able to continue to make anonymous payments with banknotes, if they wish to do so.

We will take all these factors into consideration as we continue our work and seek the views of stakeholders to find the right balance. This includes maintaining a close dialogue on the implications of potentially issuing a digital euro and the framework that would be needed to do so with the legislators and institutions that set the rules on privacy and data protection.

A digital euro as a new and secure payment solution

The security and usability of the digital euro are also particularly important for prospective users.

Electronic payments are becoming increasingly popular, so a digital euro would ensure that sovereign money – a public good that central banks have been offering to citizens for centuries – remains available in the digital era. People could have full confidence in both the digital euro and cash, since they are both backed by a credible central bank. This is a unique feature that no private payment scheme can provide.

Let me emphasise, once again, that a digital euro would not mean the end of cash. It would complement cash, not replace it. In doing so, a digital euro would contribute to a more diverse payments landscape, giving people greater choice in how they pay. This is also why the digital euro cannot and will not be a tool used to impose negative remuneration on money. If digital euro holdings were to be remunerated, the remuneration of individuals’ holdings for basic retail use would not go below zero. And effective choices on the design of a digital euro would eliminate risks to financial stability and banking intermediation.

A digital euro would encourage further innovation and digitalisation in retail payments. Supervised intermediaries such as banks and payment institutions could build on the digital euro to offer additional services to end users. Respondents to our consultation expect the digital euro to foster the provision of services that add value, like those covered by the revised Payment Services Directive and those that could offer the possibility of linking a payment to an external condition.

We are currently focusing on domestic needs in the euro area. But a digital euro could also help to address inefficiencies in cross-currency and cross-border payments. We are working with other major central banks to reap the potential benefits of digital currencies at the global level. We want to gain a better understanding of the implications of different types of central bank digital currencies while controlling the possible risks to both domestic and foreign economies.

Conclusion

Let me conclude. The record level of participation in our public consultation and the willingness of citizens and professionals to support a digital euro are encouraging. Their responses show the high expectations that prospective users have for a digital euro and provide valuable input for our work.

We are treating this matter with priority and will move as rapidly as possible. But we also need to take the time to do it right. In the coming months, the ECB’s Governing Council will decide whether to start a formal investigation phase on a digital euro.

In such a phase, we would carefully analyse possible design options and user requirements as well as the conditions under which financial intermediaries could provide front-end services built on a digital euro. We expect this analysis to take around two years.

At the end of the investigation, the Governing Council would take a decision on the design and on whether to move to the implementation of user requirements. This phase, which would take several years, would see the development of integrated services, testing and possible live experimentation of a digital euro.

Only at the end of this process would the Governing Council be able to decide whether or not to launch a digital euro. We will do our best to ensure that a digital euro meets the needs and expectations of Europeans.

But it can only be a common European enterprise. The alignment of European authorities and institutions, mindful of their respective mandates and independence, will be key if a digital euro is to be accepted. I am therefore pleased to see that this Committee welcomed our work in its recent resolutions on the ECB Annual Report and the international role of the euro.

As co-legislators and representatives of Europeans, you have a fundamental role to play in the discussions on the framework that would be needed to issue a digital euro. This is why I very much appreciate exchanges like the one today.

ECB digital euro consultation ends with a record level of public feedback

Over 8,000 responses received in online survey on digital euro

● Privacy, security and pan-European reach ranked highest in European citizens’ preferences
● Detailed analysis to be published in spring, ahead of decision on project launch
The European Central Bank (ECB) concluded its public consultation on the digital euro yesterday and will now analyse in detail the large number of responses. 8,221 citizens, firms and industry associations submitted responses to an online questionnaire, a record for ECB public consultations.
The public consultation was launched on 12 October 2020, following the publication of the Eurosystem report on a digital EUR. The ECB will publish a comprehensive analysis of the public consultation in the spring, which will serve as an important input for the ECB’s Governing Council when deciding whether to launch a digital euro project.

An initial analysis of raw data shows that privacy of payments ranked highest among the requested features of a potential digital euro (41% of replies), followed by security (17%) and pan-European reach (10%).
“The high number of responses to our survey shows the great interest of Europe’s citizens and firms in shaping the vision of a digital EUR,” said Fabio Panetta, Member of the ECB’s Executive Board and Chair of the task force on a digital euro. “The opinions of citizens, businesses and all stakeholders are of utmost importance for us as we assess which use cases a digital euro might best serve.”

The Eurosystem task force, bringing together experts from the ECB and 19 national central banks of the euro area, identified possible scenarios that would require the issuance of a digital euro. These scenarios include an increased demand for electronic payments in the euro area that would require a European risk-free digital means of payment, a significant decline in the use of cash as a means of payment in the euro area, the launch of global private means of payment that might raise regulatory concerns and pose risks for financial stability and consumer protection, and a broad take-up of central bank digital currencies issued by other central banks.
A digital euro would be an electronic form of central bank money accessible to all citizens and firms – like banknotes, but in a digital form – to make their daily payments in a fast, easy and secure way. It would complement cash, not replace it. The Eurosystem will continue to issue cash in any case.

A digital common currency would combine the efficiency of a digital payment instrument with the safety of central bank money. The protection of privacy would be a key priority, so that the digital euro can help maintain trust in payments in the digital age.

The future of money – innovating while retaining trust

Article by Christine Lagarde, President of the ECB, in L’ENA hors les murs magazine

Paris, 30 November 2020

Important lessons can be drawn from the past to understand the factors influencing the journey towards the future of money, including the possible introduction of a digital euro. Ensuring the euro meets the needs of European citizens is at the core of the ECB’s mandate.

Throughout history, the nature of money has evolved in response to socioeconomic changes. But the functions of money – as a means of exchange, a unit of account and a store of value – have remained the same for centuries.

One reason why money first emerged was to overcome the limitations and inefficiencies of bartering. As economies became more specialised, trade became all the more essential, and a universal medium of exchange was needed to facilitate it. Coins made from (precious) metals fulfilled that purpose for centuries.

But with the development of international trade, coins became increasingly impractical because they are difficult to store and transport in large volumes.

This led to the next phase in the evolution of money through medieval times into the late middle ages and early modern times. Developments included the advent of Templar’s credit notes in France, private giro banking in Italy, bills of exchange and promissory notes, and the first predecessors of paper money.

Role of the public sector

All of these instruments foresaw convertibility into precious metal coins. The acceptance of these forms of dematerialised and easy-to-carry money depended on the reputation of the issuer, and credit risk became relevant.

This led to the public sector playing an increasingly important role in issuing money and ensuring its value remained stable. Examples include the emergence of early public giro banks at the beginning of the 15th century and the first attempts to issue modern banknotes in the second half of the 17th century.[1]

In today’s modern economies, including in the euro area, money is no longer convertible into, or backed by, any commodity. Fiat money, as it is known, serves as legal tender by decree of the government or even constitutional legislation (such as the EU Treaty[2]). The value of money is based on citizens’ trust in it being generally accepted for all forms of economic exchange and in the ability of central banks to maintain its purchasing power through monetary policy. Central banks’ institutional independence also bolsters their ability to maintain trust in money.

Since early modern times central banks have gradually been assuming an increasingly pivotal role in ensuring that money delivers on the three functions I outlined. They must be fully aware of and adapt to changing realities.

Technological progress

As we enter the digital age, the nature of money, but also of goods and services, is changing quickly. Digitalisation and technological advances are transforming all areas of society, accelerating the process of dematerialisation.

Non-cash payments continue to increase. In the euro area, over the last year the total number increased by 8.1% to 98 billion. Nearly half of these transactions were made by card, followed by credit transfers and direct debits.[3]

The coronavirus (COVID-19) pandemic has accelerated this trend towards digitalisation, with a surge in online payments and a shift towards contactless payments in shops.[4] Market participants expect payments to be the financial service that will be most affected by technological innovation and competition over the next five years, according to a survey conducted in 2019.[5]

To meet the demand for digital means of payment, new forms of private money (i.e. a liability of private entities) have emerged. They are available as commercial bank deposits which can be used for transfers and direct debits, and as electronic money through credit cards and mobile payment apps.

In the euro area, the Eurosystem’s supervision mechanisms ensure commercial banks and payment service providers are effective and safe. This enables people to continue to have confidence in private money, which remains an integral part of our financial system.

But central bank money in digital form is still not available for retail payments.

Digital euro

The ECB wants to ensure the euro remains fit for the digital era. Early this year, the Governing Council decided to explore the possibility of issuing of a digital euro – digital central bank money for retail payments, in other words.

The Eurosystem is assessing the implications of the potential introduction of a digital euro, which in legal terms would be a liability of the central bank. In October the ECB published the Report on a digital euro[6] and launched a public consultation[7].

But why issue a digital euro, if other forms of (private) digital money are already available?

Central bank money is unique. It provides people with unrestricted access to a simple, essentially risk-free and trusted means of payment they can use for any basic transaction. But for retail use it is currently only offered physically in the form of cash.

A digital euro would complement cash and ensure that consumers continue to have unrestricted access to central bank money in a form that meets their evolving digital payment needs.

It could be important in a range of future scenarios, from a decline in the use of cash to pre-empting the uptake of foreign digital currencies in the euro area. Issuing a digital euro might become necessary to ensure both continued access to central bank money and monetary sovereignty.

A properly designed digital euro would create synergies with the payments industry and enable the private sector to build new businesses based on digital euro-related services.

A digital euro would also be an emblem of the ongoing process of European integration and ultimately help to unify Europe’s digital economies.

Crypto-assets pose risks

But what about bitcoin or other crypto-assets that have been trying to gain a foothold in the digital payments space and to anchor trust in their technology?

Innovations like distributed ledger technology (DLT), in particular blockchain (which is at the core of crypto-assets such as bitcoin), bring both new opportunities and new risks.

Transactions between peers occur directly, with no need for a trusted third-party intermediary. The trust that is usually inherent in a transaction is replaced by cryptographic proofs and the security and integrity of records is ensured by DLT, which avoids the “double-spending” problem. Nevertheless, trust is not entirely dispensable.

The main risk lies in relying purely on technology and the flawed concept of there being no identifiable issuer or claim. This also means that users cannot rely on crypto-assets maintaining a stable value: they are highly volatile, illiquid and speculative, and so do not fulfil all the functions of money.[8]

Recently, we have seen the emergence of stablecoins, which try to solve crypto-assets’ problem of a lack of stability and trust by pegging their assets to stable and trusted fiat money issued by States.[9] And the issuers of “global” stablecoins, which target a global footprint, further aim to introduce their own payment schemes and clearing and settlement arrangements.[10]

Although stablecoins could drive additional innovation in payments and be well integrated into social media, trade and other platforms, they pose serious risks.

If widely adopted, they could threaten financial stability and monetary sovereignty. For instance, if the issuer cannot guarantee a fixed value or if they are perceived as being incapable of absorbing losses, a run could occur. Additionally, using stablecoins as a store of value could trigger a large shift of bank deposits to stablecoins, which may have an impact on banks’ operations and the transmission of monetary policy.[11]

Stablecoins, particularly those backed by global technology firms (the “big techs”), could also present risks to competitiveness and technological autonomy in Europe, as they would attempt to leverage their competitive advantage and control of large platforms. Their dominant positions may harm competition and consumer choice, and raise concerns over data privacy and the misuse of personal information.[12]

“Money is memory”

In general, end users prioritise ease of use and smooth integration with other apps or services, and therefore welcome new solutions in exchange for providing their personal data. Public authorities are open to innovation and are prepared to act as catalysts for change, while implementing appropriate policy measures to ensure this innovation helps consumers rather than hindering them.

Payment providers and their payment solutions must be subject to appropriate regulation and oversight – in accordance with the principle of “same business, same risks, same rules” – to protect users and safeguard the stability of the economy against new risks that even go beyond financial ones.

Some say that “money is memory”[13], and it seems that this memory is becoming increasingly digital. But consumers’ digital data and records must not be misused. The abuse of personal information for commercial or other purposes could endanger privacy and harm competition. These and other potential risks are being assessed by the Eurosystem and European institutions.

At the same time, public authorities must balance the benefits and risks of innovation in payments and be prepared to take a leading role in ensuring that payments remain efficient, safe and inclusive in the digital age.

As the economy continues to evolve and new expectations about the nature of money emerge, the Eurosystem must be ready to respond and ensure that European payments adapt to changing consumer preferences and remain inclusive and efficient.

Despite all the changes I have mentioned, the foundations of money remain intact. People accept money only if it is highly trusted, maintains its value and respects privacy – an aspect that is becoming increasingly important in the digital age. These foundations have been and will continue to be found in central bank money, irrespective of the form it takes in the future.[1]Bindseil, U. (2019), Central Banking before 1800: A Rehabilitation, Oxford University Press; Le Goff, J. (2010), Le Moyen Age et l’argent, Perrin.[2]Article 128(1) of the Treaty on the Functioning of the European Union.[3]ECB (2020), “Payments statistics: 2019”, 11 September.[4]ECB (2020), “Impact of the pandemic on cash trends (IMPACT)”, forthcoming.[5]Petralia, K., Philippon, T., Rice, T. and Véron, N. (2019), “Banking Disrupted? Financial Intermediation in an Era of Transformational Technology”, Geneva Reports on the World Economy, No 22, International Center for Monetary and Banking Studies and Centre for Economic Policy Research, 24 September.[6]ECB (2020), “Report on a digital euro”, October.[7]ECB (2020), “Public consultation on a digital euro: public consultation (questionnaire)”, October.[8]ECB Crypto Assets Task Force (2019), “Crypto-Assets: Implications for financial stability, monetary policy, and payments and market infrastructures”, Occasional Paper Series, No 223, ECB, May.[9]ECB Crypto Assets Task Force (2020), “Stablecoins: Implications for monetary policy, financial stability, market infrastructure and payments, and banking supervision in the euro area”, Occasional Paper Series, No 247, ECB, September.[10]G7 Working Group on Stablecoins (2019), “Investigating the impact of global stablecoins”, October.[11]See footnote 9 and Panetta, F. (2020), “The two sides of the (stable)coin”, speech at Il Salone dei Pagamenti 2020, 4 November.[12]G7 Working Group on Stablecoins (2019), “Investigating the impact of global stablecoins”, October; Panetta, F. (2020), ibid.[13]Kocherlakota, N. (1998), “Money Is Memory”, Journal of Economic Theory, Vol. 81, No 2, pp. 232-251.

From the payments revolution to the reinvention of money

Speech by Fabio Panetta, Member of the Executive Board of the ECB, at the Deutsche Bundesbank conference on the “Future of Payments in Europe”

Frankfurt am Main, 27 November 2020

Retail payments play a fundamental role in our daily lives and for the economy. Last year, adults in the euro area made two payments per day on average.[1] The universe of retail transactions[2] amounted to 213 billion payments – two million every five minutes – with an estimated total value of €164 trillion.[3]

As part of its mission to promote the smooth operation of the payment system, the Eurosystem has two main objectives in the area of retail payments. The first is to guarantee that people have access to efficient payment solutions that meet their preferences. The second is to ensure that transactions remain safe, underpinning confidence in our currency and the functioning of our economy.

Technological innovation means that the policy implications of these objectives are changing, and new opportunities and risks are emerging. Today I will present the Eurosystem’s response: a strategy for empowering Europeans with efficient, inclusive and secure payments in the digital age. And I will argue that the impending revolution in payments requires us to stand ready to reinvent sovereign money.

Convenience and safety in the digital age – Payments

Payments have evolved substantially over time, but the key determinants of their success have remained fundamentally unchanged. People want payments that offer convenience and safety at a low cost. Convenience requires payments to be easy to use, fast and widely accepted, while safety requires low risk from an economic, financial and societal perspective.

The digital transformation is raising the bar for convenience and safety. With the growth of e-commerce and connected lifestyles, people are increasingly demanding immediacy and seamless integration between payments and digital services. At the same time, they are increasingly concerned about privacy, cybersecurity and reliability.

This wide range of desirable features creates scope for innovative payment solutions. Currently, none of the existing solutions – cash, cards, credit transfers, direct debits and e-money – meet all the required features at once. People are forced to use several instruments at the same time. In-person transactions[4] are mostly conducted with cash and cards.[5] Remote purchases are dominated by cards and e-payments.[6] And bills are generally paid using direct debits and credit transfers.[7]

The coronavirus (COVID-19) shock has accelerated the trend towards digitalisation, leading to a surge in online transactions and contactless payments in shops. This trend is likely to persist once the pandemic is over.[8] So we must ask ourselves whether the available means of payment adequately meet the needs of consumers in the digital age.

Cash offers a secure and inclusive way of making in-person payments, but it is not well suited for payments in a digital context, such as in e-commerce. So it is no surprise that it is being used less.[9] Payment cards, on the other hand,facilitate digital, contactless payments. But they are not accepted everywhere. And the Europe-wide acceptance of cards issued under national card schemes currently relies on agreements with international card schemes. As a result, people mostly use international schemes for cross-border card payments, and the European market for card payments is dominated by non-European schemes.

Generally, Europe is increasingly relying on foreign providers, with a high degree of market concentration in some segments, such as card transactions and online payments.[10]

We should not let this reliance turn into dependence. Dependence on foreign providers and excessive market concentration would harm competition, limiting the choice for consumers and exposing them to non-competitive pricing. It could reduce the resilience of the payment system and weaken the ability of European authorities to exercise controls.

We must ensure that the payment market remains open to competition, including from European suppliers and technology.

The influx of technology firms

Fintech companies have sparked the latest wave of innovation, accelerating the evolution of the payment system.[11] Many of them have adopted data-driven business models, where payment services are provided free of charge in exchange for personal data. Numerous banks are expanding their range of digital services by entering into agreements with fintechs; in some cases, integration is achieved when a bank acquires a fintech firm.

The global tech giants – the so-called big techs – are aiming for a revolution in the payments landscape, and represent a threat to traditional intermediation.[12] These firms can use data-driven models on an entirely new scale by leveraging their large customer base, real-time data and control of crucial infrastructures for commerce and economic activity – from online marketplaces to social media and mobile technologies. They can use these advantages, their financial strength and their global footprint to provide new payment solutions and expand in both domestic and cross-border transactions. This would offer them an even stronger base to further expand the range of their financial activities, including lending, as their superior ability to collect and analyse large volumes of data gives them an information advantage.

If not properly regulated, big techs may pose considerable risks from an economic and social perspective and they may restrict, rather than expand, consumer choice. They can aggravate the risk of personal information being misused for commercial or other purposes, jeopardising privacy and competition. And they can make the European payment market dependent on technologies designed and governed elsewhere, exacerbating its vulnerability to external disruption such as cyberattacks.

The big techs may also contribute to a rapid take-up, both domestically and across borders, of so-called stablecoins.[13] As I have argued previously[14], stablecoins raise concerns with regard to consumer protection and financial stability. In fact, the issuer of a stablecoin cannot guarantee the certainty of the value of the payment instrument it offers to consumers. Such a guarantee can only be provided by the central bank.

Moreover, unlike bank deposits, stablecoins do not benefit from deposit guarantee schemes, their holders cannot rely on the degree of scrutiny that is now the norm in banking supervision, and the issuers do not have access to central bank standing facilities. As a result, stablecoin users are likely to bear higher credit, market and liquidity risks, and the stablecoins themselves are vulnerable to runs[15], with potentially systemic implications[16].

These risks could be mitigated if the stablecoin issuer were able to invest its reserve assets[17] in the form of risk-free deposits at the central bank, as this would eliminate the investment risks that ultimately fall on the shoulders of stablecoin holders.[18]

This would not be acceptable, however, as it would be tantamount to outsourcing the provision of central bank money. It could endanger monetary sovereignty if, as a result, private money – the stablecoin – were to largely displace sovereign money as a means of payment. Money would then be reduced to a “club good” offered in return for the payment of a fee or membership of a platform.[19]

We should safeguard the role of sovereign money, a public good that central banks have been managing for centuries in the public interest and that should be available to all citizens to satisfy their need for safety.

Monetary sovereignty could also be threatened if foreign central bank digital currencies became widely used in the euro area, with implications for international monetary spillovers.[20]

These risks are not imminent. We must nonetheless be alert to possible non-linear developments that could endanger financial stability and monetary and economic sovereignty. As we aim to enhance the efficiency of European payments, we therefore need to be prepared to rethink the nature and the role of sovereign money.

The Eurosystem policy response

The Eurosystem is implementing a comprehensive policy to ensure that citizens’ payment needs are met, while safeguarding the integrity of the payment system and financial stability. Our policy is based on interconnected elements addressing the entire payment value chain.

First, we have enhanced our retail payments strategy, in order to foster competitive and innovative payments with a strong European presence. We are actively promoting pan-European initiatives that offer secure, cheap and widely accepted payment solutions.[21]

We are supporting access to bank accounts by non-bank providers, so that they can expand the range of payment initiation services they offer. Yesterday the Euro Retail Payments Board, chaired by the ECB, launched a work stream to facilitate this access. We are working to make the European e-identity and e-signature frameworks better suited for payments and the financial sector more broadly.

Our retail payments strategy also builds on the promotion of instant payments, which make funds immediately available to recipients. We have created a solid basis for instant payments, with commonly agreed rules and powerful infrastructures, including the TARGET Instant Payment Settlement (TIPS) service, operated by the Eurosystem. Thanks to the measures we have taken in recent months, all euro instant payment providers and infrastructures will have access to TIPS by the end of 2021.

Second, we are adapting our regulatory and oversight framework to the fast pace of financial and technological innovation. We have reviewed our Regulation on oversight requirements for systemically important payment systems[22], introducing a more forward-looking approach to identify payment systems that are systemically important. And today we are launching a public consultation on the new regulation, which will then become operational by mid-2021.

We are also completing the public consultation on our new framework for electronic payment instruments, schemes and arrangements, the so-called PISA framework. PISA extends our oversight[23] to digital payment tokens[24], including stablecoins, and to payment arrangements providing functionalities to end users of electronic payment instruments[25]. As a result, technology providers can become subject to oversight.

As part of our comprehensive policy, we are working to safeguard the role of sovereign money in the digital era: we want to be ready to introduce a digital euro, if needed.

A digital euro would combine the efficiency of a digital payment instrument with the safety of central bank money. It would complement cash, not replace it. Together, these two types of money would be available to all, offering greater choice and access to simple, costless ways of paying.

We have started a public consultation to seek feedback from people across Europe and gain a better understanding of their needs. It will be completed in January, and the results will be published once they have been analysed.

A digital euro would need to be carefully designed, in order to enhance privacy in digital payments[26], respect the rules on countering illegal activities and avoid interference with central bank policies, first and foremost monetary policy and financial stability.

In particular, a digital euro should be a means of payment, not a form of investment that competes with other financial instruments. This would require limiting the holdings of individual users[27] and mean that, unlike stablecoin issuers, the issuer of the digital euro – the ECB – would not aim to acquire deposits.

A digital euro would support the modernisation of the financial sector and the broader economy. It would be designed to be interoperable with private payment solutions and would thus represent the “raw material” that supervised intermediaries could use to offer pan-European, front-end payment solutions.

A digital euro would also generate synergies with other elements of our strategy, facilitating the digitalisation of information exchange in payments through e-invoices, e-receipts, e-identity and e-signature. And in making it easier for intermediaries to provide added value and advanced technological features at lower cost, it would give rise to products that could compete with those of the big techs, thereby benefiting end users.

The ECB and the national central banks have started preliminary experimentation through four work streams. First, we will test the compatibility between a digital euro and existing central bank settlement services (such as TIPS).[28] Second, we will explore the interconnection between decentralised technologies, such as distributed ledgers, and centralised systems. Third, we will investigate the use of payment-dedicated blockchains with electronic identity. And fourth, we will assess the functionalities of hardware devices that could enable offline transactions, guaranteeing privacy.[29]

We will take the necessary time to explore all aspects of different options: whether they are technically feasible, whether they comply with the principles and policy objectives of the Eurosystem, and whether they satisfy the needs of prospective users.

Conclusion

Let me conclude. The digital transformation is triggering a revolution in the financial sector, which will bring innovation but also risks. In particular, big techs and stablecoins could disrupt the European financial system. And while they could offer convenient and efficient payment solutions, they also risk endangering competition, privacy, financial stability and even monetary sovereignty.

Our policies provide a forceful policy reaction to the digital shock. We want to create the conditions for a resilient, innovative, diverse and competitive payments landscape that can better serve the evolving needs of European people and businesses. We are promoting safe, pan-European instant payments.

What is at stake is nothing short of the future of money. As private money goes digital, sovereign money also needs to be reinvented. This requires central bank money to remain available under all circumstances – in the form of cash, of course, but also potentially as a digital euro.

We want to enable people to choose their preferred way of paying without having to compromise on their expectations of fast, secure, inclusive and seamless payments. This is our aim today, and it will remain our aim in the future.