ECB Praises European Commission’s Digital Euro Proposal as Key to Competing With the Private Sector

In a speech to the European Parliament’s Committee on Economic and Monetary Affairs on September 4th, European Central Bank (ECB) executive board member Fabio Panetta presented a compelling case for Europe’s pursuit of the digital euro.

Panetta’s address centered on the European Commission’s (EC) legislative proposals regarding the digital euro.

🧵 A digital euro would be a new form of central bank money, says Executive Board member Fabio Panetta. It is now up to legislators to ensure it would replicate key characteristics of cash in the digital sphere, particularly its privacyhttps://t.co/nQJzYylwpV

1/3 pic.twitter.com/4XPlk83Lwj

— European Central Bank (@ecb) September 4, 2023

These proposals, as outlined in the speech, are poised to establish Europe as a trailblazer in the realm of central bank digital currencies (CBDCs) while also aiming to mitigate private entities’ potential domination of the financial sector.

He noted that the project’s inception dates back to October 2020, when the ECB published its first report on a digital euro.

This early groundwork ultimately led to the formal launch of the digital euro investigation phase in October 2021.

Throughout this journey, the ECB has shared numerous reports and studies with the European Parliament, offering transparency and accessibility to citizens and stakeholders alike.

The collaborative efforts have culminated in the discussion of 110 questions posed by the Committee.

Panetta Welcomes Digital Euro Legislative Proposals 

In June, the EC introduced its single currency package, which included legislative proposals concerning the digital euro and the legal tender status of physical cash.

Panetta welcomed these proposals, describing them as groundbreaking. He asserted that they position Europe at the forefront of advanced economies concerning CBDC initiatives.

The legislative proposals create a new way to protect monetary sovereignty in the digital age while preserving financial freedom.

They allow Europeans to choose between public and private payment methods, with no obligation to use the digital euro, ensuring user autonomy.

Privacy is critical to enhancing data protection while mitigating money laundering and terrorism financing risks; the digital euro offers high privacy levels, even offline.

The Eurosystem doesn’t access personal user data; intermediaries only gather necessary information for compliance.

Furthermore, the proposal acknowledges the ECB’s capacity to develop and apply the tools necessary to maintain equilibrium between private and central bank money.

These tools, such as holding limits, are designed to preempt undesirable consequences for monetary policy, financial stability, and credit allocation to the real economy.

“Let me emphasise, once again, that the issuance of a digital euro represents an opportunity, not a risk, for the European financial sector. We are designing it as a safe payment tool in order to preserve the role of public money – that is, money backed by the state – while balancing innovation in payments with the stability of the financial sector and guaranteeing privacy.”

Panetta reassured the audience that issuing a digital euro is an opportunity rather than a risk for the European financial sector.

To emphasize the opportunities of the digital euro, he highlighted that the digital euro introduced by public authorities under European regulatory oversight would provide a secure payment alternative while fostering innovation and competition among payment service providers.

Unlike stablecoins issued by large tech companies, the digital euro would be distributed through banks and payment service providers, ensuring compatibility with existing payment methods and prioritizing privacy.

“Next month we will report on the findings of the investigation phase. On this basis, the Governing Council will decide whether to move to the next phase of the project.”

Panetta concluded by highlighting the nearing end of the ECB’s investigation phase. The next step involves reporting findings and the Governing Council’s decision, which will only come after adopting the legislative framework.