Saturday, June 15, 2024

The Case for the Digital Euro | Pay It Forward With European Central Bank

In this episode of the “Pay It Forward” podcast, we speak to Evelien Witlox, one of the key minds working on the Digital Euro at the European Central Bank (ECB), to find out more about the project.

We hear about the project’s transition from investigation to preparation, all in service of creating a robust Pan-European payment system. Tune in to the video above or read on to find out more about the key drivers behind this leading example of digital currencies and some of the key benefits they feel it will have.

Central Bank Digital Currencies, which involves central banks creating digital versions of their national currencies to enhance the efficiency, security, and inclusivity of payment systems, are becoming increasingly ubiquitous. More and more countries and jurisdictions are developing or researching the possibility of one, as we established in an article looking at the topic. As for the European Central Bank, the idea of a Digital Euro is something they’ve long supported, with legislation from the European Commission outlining how it could work. Not everyone’s on board and there are legitimate concerns about whether it would work but there’s no question there are a number of conceivable benefits. Witlox looks at some of those in the conversation.

Getting people on board with the Digital Euro

It begins with a bit of background into her own career in the private sector, before moving to the ECB and transitioning into payments. A big part of what is needed for the Digital Euro to work is stakeholder engagement. Witlox explains that the ECB is actively collaborating with various market participants, including the European Retail Payments Board, consumer organizations, banks, and non-bank financial entities. This inclusive approach ensures that the Digital Euro is developed with broad input and support. She also stresses the importance of communication and transparency, which includes participating in conferences like the one where this conversation took place, MPE.

One issue that the currency would attempt to address is Europe’s dependence on non-European payment systems, which handle about 70% of retail payments. Witlox talks about the necessity for a Pan-European infrastructure to maintain monetary sovereignty and ensure the continuity of retail payments. The Digital Euro could reduce this dependency and enhance the resilience of the European payment system.

Interoperability with other digital currencies is another key topic. Witlox acknowledges the importance of designing the Digital Euro with future interoperability in mind, even though the current focus is on creating a robust system tailored to Europe’s needs.

What most want to know is what are the benefits and opportunities of the Digital Euro? Witlox outlined several advantages, such as ensuring access to central bank money in a future where cash usage might decline. There is also the goal mentioned above of being a Pan-European solution with legal tender status, meaning it would be accessible through all banks and accepted by all merchants. In theory, this would foster competition and provide a public good that counters the monopolistic tendencies of dominant private payment providers.

It’s a fascinating conversation that should give an insight into what could be happening in Europe over the coming years.

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