Preserving people’s freedom to use a public means of payment: insights into the digital euro preparation phase

Introductory statement by Piero Cipollone, Member of the Executive Board of the ECB, at the Committee on Economic and Monetary Affairs of the European Parliament

Brussels, 14 February 2024

Thank you for the opportunity to speak before the Committee today. As I emphasised during my confirmation hearing, I am committed to actively pursuing the dialogue with the European Parliament on a digital euro.

This year marks the 25th anniversary of the euro and our monetary union. It is up to us to ensure both remain fit for the digital age. The Single Currency Package^[1] will help us achieve just that: first, by ensuring cash remains widely accessible and accepted; and second, by complementing cash with a digital option for paying with central bank money.

A digital euro would be a European means of payment which could be used free of charge, for any digital payment, anywhere in the euro area. Together with cash, a digital euro would preserve European citizens’ freedom to use a public means of payment.

Yet, we are at risk of taking this freedom for granted. In my previous role, I received countless letters from mayors of communities – in mountainous regions for instance – who expressed concerns about increasingly long distances to the nearest ATM.

Cash and a digital euro have the same objective: ensuring that everyone, regardless of their income, can pay in any situation of daily life. This is a fundamental right. And it should be protected in the same way in all parts of the euro area.

This is a timely moment to discuss a digital euro. As co-legislators, you are currently debating the European Commission’s legislative proposal, while the Eurosystem initiated the digital euro preparation phase last November.^[2]

Your legislative deliberations frame our technical work, and they will continue to do so. The Eurosystem stands ready to provide technical input to European co-legislators as needed. Let me assure you that the ECB’s Governing Council will not take any decision about the issuance of a digital euro until the legislative act has been adopted. This constitutes the framework within which the digital euro will be established as legal tender. We will of course remain fully accountable at all times and will keep you continuously and closely informed about the Eurosystem’s progress towards a digital euro, not just at this stage but also after the legislative deliberations have concluded.

Let me now update you on four key issues that are central to our preparation phase: i) search for possible providers to develop a digital euro platform and infrastructure; ii) preparing the digital euro rulebook; iii) ensuring the stability of the financial system; and iv) last but not least, offering a higher level of privacy when making digital payments.

Searching for possible providers to develop a digital euro platform and infrastructure

At the beginning of this year, we started the selection process to find possible providers who could potentially develop a digital euro platform and infrastructure.^[3]

Let me be clear: we are not launching any of the development work now. Instead, we want to establish framework agreements that could be used in the coming years to develop the relevant components if the decision to launch the digital euro is taken.^[4] We need to be prepared for such an event. Our readiness would be compromised if we started searching for possible suppliers only after that decision is made. However, we are not tying our hands in any way by sourcing potential suppliers now. The agreements will be sufficiently flexible to accommodate the legislative deliberations or technological advances. And if we were to take the decision not to launch a digital euro, we would not sign any contracts.

Closer engagement with external providers will provide us with insights into the technological options available and the choices to be made. This is particularly crucial for components that are not yet on the market, such as the offline digital euro functionality.

To strengthen our autonomy, resilience and security, a digital euro would rely on a European infrastructure. Accordingly, only legal entities with registered offices in the EU and controlled by such entities or EU nationals^[5] will be eligible to participate in the procurement process.^[6]

At this stage, we have issued calls for applications to establish framework agreements with potential providers of digital euro components and related services.

We will publish the outcome of the subsequent public tender process on our website.

Preparing the digital euro rulebook

There is currently no single European digital means of payment that is universally accepted across the entire euro area. This forces Europeans – consumers, merchants and banks – to rely on ever more expensive international card solutions for daily payment activities. Fees applied by international card schemes almost doubled between 2016 and 2021 in the EU.^[7] And even these international card solutions cannot be used everywhere.

A digital euro would remedy this situation, breaking Europe’s long-held dependency and fostering competition. To this end, everyone in the euro area should be able to make or receive payments in digital euro, irrespective of their intermediary or country of origin – as is currently the case for cash.

This is why we need a digital euro rulebook. We are working on a draft rulebook together with representatives of consumers, retailers and intermediaries.^[8] We have recently published a report on our progress in this area.^[9]

The rulebook will define a single set of rules, standards and procedures for the digital euro that will ensure its harmonious implementation. This will guarantee, for example, that someone from Finland will be able to pay with digital euro as easily and in the same way in Lisbon as they can back home in Helsinki.

A digital euro would thus provide an alternative infrastructure for all day-to-day payments, which could be used by payment service providers and schemes, such as the European Payments Initiative, Bizum or Bancomat, to roll out instant payment-based solutions across the euro area. This would reduce our dependence on non-European players while fostering competition among European players.

By analogy: the digital euro infrastructure could be seen as a common European railway, on which different companies can operate their own trains and compete for customers without needing to deploy their own private tracks, as is the case with today’s payment system. In addition, private payment service providers could launch new and innovative products or extend their scope beyond existing use cases and domestic markets. This would be a marked improvement on the current situation.

Ensuring the stability of the financial system

There is a growing public preference for digital payments.^[10] But central bank money is, for now, only available in physical form – cash. So, if we do not offer a digital euro, we run the risk that central bank money could be crowded out of payments.

Our objective is to preserve the role and share of central bank money in payments, not to displace private money. As clearly stated in the European Commission’s legislative proposal, preserving the role of central bank money should not come at the expense of other objectives, such as protecting monetary policy transmission or financial stability. And we are in any case bound by these objectives, which are at the heart of the ECB’s mandate.

That is why we have included safeguards in the design of a digital euro.

First, as is the case for euro banknotes, digital euro holdings would not be remunerated and hence would not compete with savings deposits.^[11] And banks could always offer higher remuneration to retain deposits. This would benefit savers and could in fact increase the deposit base, supporting bank lending.^[12]

Second, there will be limits on the amount of digital euro that can be held by individuals. And while businesses and public sector organisations could receive and process payments in digital euro, they could not hold any.^[13]

Third, users could pay with digital euro online without prefunding their wallets, by seamlessly linking their digital euro account to a payment account with their bank. This would offer them the convenience of being able to make and receive online payments, even above their digital euro funds and the holding limit.^[14] However, if people want to use the offline functionality, they would need to prefund their offline wallet. Just like today with people having to withdraw banknotes in order to use cash.

These features show that a digital euro is being designed as a means of payment and not as a form of investment. And it will preserve the role of intermediaries, contrary to alternative solutions offered by technology firms, which will have no such safeguards.^[15]

We have just started to develop the analytical framework and models that would be used to determine the holding limit. This limit will be set to preserve financial stability, having considered the impact on different bank business models and on monetary policy transmission and implementation.

This is a Eurosystem-wide endeavour, and we will engage with banks and other market participants to properly set out the necessary assumptions and define the analytical methodology. We will share our findings with you and the general public. Let me assure you that financial stability considerations are central to our thinking as they underpin our ability to pursue our price stability mandate.

Offering a higher level of privacy in digital payments

Let me now turn to one of the most important design features of a digital euro, namely privacy. We welcome the high standard of privacy and data protection provided for under the proposed regulation. Ultimately, this is for the European co-legislators to decide.

On our side, we are determined to not only protect but enhance privacy in payments.

First, we already provide cash, the payment instrument that offers the highest level of privacy. We are determined to continue to do so, as demonstrated by our ongoing efforts to produce the third series of euro banknotes.^[16] We will continue to do everything in our power to ensure people can continue to have the option to pay with it. They value this option, and we are committed to maintaining it for them.^[17]

Second, a digital euro will be usable offline. Paying offline in digital euro would be similar to using cash. Just like cash payments, it would require physical proximity and offer cash-like privacy: personal transaction details would only be known to the payer and the payee.

Third, a digital euro would allow people to make online payments with very high standards of privacy, higher in fact than what commercial solutions currently offer. The Eurosystem would not be able to identify people based on the payments they make.^[18] We would only see a minimal set of pseudonymised data necessary to fulfil Eurosystem tasks, such as settlement.^[19] And digital euro users would retain control over how their data is used by payment service providers,^[20] who would have access to customer data to prevent illicit activities, such as money laundering or terrorist financing,^[21] and also to fulfil their contractual obligations towards customers, while having to respect all applicable privacy protection regulations, such as the General Data Protection Regulation. In its Opinion on the digital euro, the ECB also suggests considering the possibility of offering increased privacy for certain low-risk, low-amount payments in digital euro in online mode.^[22]

Fourth, we would implement state-of-the-art security and privacy-preserving measures to ensure privacy protection. And we will deploy strong governance safeguards. Independent data protection authorities will oversee compliance with EU data protection rules and regulations, which are the strongest privacy and security laws in the world. And provisions in the proposed regulation envisage data protection authorities being consulted at an early stage.^[23]

Conclusion

Let me conclude.

The digital euro is a common European project.

First and foremost, it is about preserving everyone’s freedom to use a public means of payment anywhere in the euro area, even as payments go digital. And it is crucial to strengthen our collective resilience and autonomy in a more fragile global environment.

That is why it is so important to set an ambitious pace. But money is trust. The digital euro will need broad support. We are therefore committed to supporting your work as co-legislator. And we are engaging with all stakeholders.

In this spirit, I will continue to be available in order to engage with you throughout the preparation phase and beyond. Together, we can build the euro’s digital future.

Thank you.