The European Central Bank intends to involve the financial industry in vital design work on its plans for a digital euro and in delivering the currency to the public, Gabriel Makhlouf, the governor of the Central Bank of Ireland, says.
The ECB is “not in the business of disintermediating the banking sector”, he said, speaking after its governing council had given the go ahead last week for preparations for the digital euro to move to the next phase.
The European banking sector has warned that the creation of new digital euro wallets for customers could attract cash away from bank deposit accounts and in turn cut the amount of funding they have available to lend. To combat this the ECB has indicated that the amount customers will be allowed to hold in their digital euro wallet will be limited to make it clear that it not a savings vehicle.
A cap of €3,000 had been floated. but, speaking to The Irish Times, Mr Makhlouf said no decision had been made on this yet.
Industry speculation has been that the cap may end up higher to encourage use of the digital currency. However the ECB is seen as unlikely to go as high as the figure of £20,000 (about €23,000) that has been floated as a possible cap in the UK for its digital pound.
It was now not a question of if the ECB would launch the digital euro but when it would do so, Mr Makhlouf said. “The world is moving in the direction of digital, why wouldn’t central banks be doing the same thing?”
The move was also important from the point of view of strategic autonomy, he said, developing a resilient European payments system against a backdrop of geopolitical instability. However, he said it could be seven years before the digital euro is fully operational, an indication that earlier predictions of a much shorter timescale are now seen as unrealistic,
ECB planning will now run alongside the progress of legislation drafted by the European Commission which is unlikely to be advanced until after next summer’s European Parliament elections. “We are not going to get ahead of the legislation,” Mr Makhlouf said, but enough work has been done to progress to the next phase of preparation, likely to last about two years.
The ECB is now to embark on a major communication campaign on what Mr Makhlouf described as “a digital form of public money”, explaining the concept to the public and how it differs from existing payment systems. His view was that it would “complement existing payment systems rather than replace them”, with guaranteed acceptability across the euro zone being a key advantage.
On the controversial area of privacy, which has led to some opposition to central bank digital currencies, Mr Makhlouf said the ECB was focused on meeting concerns here and “was not interested in people’s transactions history”.
The terms of which authorities can access information to combat money laundering and the financing of terrorism is a key issue to be decided in the legislation on the digital euro.
Mr Makhlouf said the governing council was also clear that the digital euro could complement cash, not replace it. “Cash remains foundational for us”, he said, and the ECB was neutral on whether people chose to pay in currency or via digital means.
