CBDC

While anonymity still stands as the core issue of European CBDC, the inevitable competition with private banks also raises questions.

As the various stakeholders within the European Union continue to research the potential of a single central bank digital currency (CBDC), the representatives of both private and public banking institutions share their opinion on the digital euro. 

In a fresh issue of the bi-annual Views Magazine, published in April, the topic of the digital euro received a heavy amount of attention from a number of speakers.

Evelien Witlox, the program manager of digital euro at the European Central Bank (ECB), lays out three digital euro use cases prioritized by the ECB. These are person-to-person payments made between individuals; consumer-to-business payments, including e-commerce and purchases made in a physical shop; payments to/by the government. 

The use cases are a sensitive area to private bankers. As Jerome Grivet, the deputy CEO at French bank Crédit Agricole S.A., notes:

“Central bank digital money could threaten the traditional banks’ business model by competing with their collection activity and disrupting their financing capacity.” 

Grivet insists that to avoid this, the digital euro should be limited to the use as a payment method rather than a store of value. That is something Burkhard Balz, a member of the executive board at Deutsche Bundesbank, agrees on. Balz underscores that the ECB and national central banks should avoid extending their footprint in the ecosystem too much, while it is the private sector that would run the distribution of the digital euro. The economic incentives, in Balz’s opinion, are essential to involve the intermediaries: 

“They should, therefore, not consider the provision of digital euro services as a sort of obligation but should explore the economic potential by developing and competing for creative solutions.”

Another side of the project which should actually be persuaded into the use of the CBDC is the customers themselves. It is difficult to predict how customers will react to this new form of central bank money and to what extent the general public will adopt it, Grivet reminds, citing a not-so-successful example of Chinese digital yuan adoption. Witlox from the ECB is aware of this concern and promises that the CBDC will be user-friendly and take on board those who cannot afford a credit card or don’t have a bank account:

“In line with its public good nature, a digital euro would also be basically free.”

As to the potential issues with anonymity, Witlox claims the ECB has no interest in users’ personal data. And therefore is considering solutions that would preserve privacy by default and by design. 

Related: What’s next for EU’s crypto industry as European Parliament passes MiCA?

The magazine also contains several interviews with American and Asian officials on the prospects of crypto regulation in general. However, without any particularly new information.

For example, Kristin Johnson, the commissioner of the United States Commodity Futures Trading Commission (CFTC), remarks that the digital economy needs to be adjusted to the same regulatory standards as in traditional finance, which she believes to be effective. Johnson also repeats the variation of the “blockchain, not crypto” motto, doubting the “extent of the relationship” of all the potential benefits of distributed ledger technology and private cryptocurrencies.

Tomoko Amaya, the Vice Minister for International Affairs at the Financial Services Agency of Japan (FSA), speaks about the vulnerabilities of “self-proclaimed stablecoins,” liquidity and maturity mismatches, excessive leverage, misuse of client assets, and conflicts of interest. Amaya gives the example of her country’s strict regulation as the successful one, stressing the importance of the tight international framework.

On April 24, the ECB released its third progress report on digital euro design. It features onboarding by payment service providers (PSPs), touchless in-store sales, online and cross-border functionalities. Published several days earlier, an analytical paper by the European Parliament’s Committee on Economic and Monetary Affairs has given the digital euro a mixed review, warning about the possible disruptive effects of the project.

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