Today the European Commission published a draft law for a digital euro. The legislation will require banks to act as intermediaries, providing basic central bank digital currency (CBDC) services for free without receiving direct compensation from the EU. Additionally, phone manufacturers such as Apple have to enable access to NFC technology. The EU already launched a complaint against Apple regarding restrictions preventing others from providing wallets that compete with Apple Pay.
“Today’s proposals will also make sure that cash will continue to be fully available, while allowing the European Central bank to develop, over time, the practical aspects of the digital euro,” said Valdis Dombrovskis, European Commission EVP. ” It would be safe and secure, instant and convenient – online and offline – offering more consumer choice alongside with private digital payment options such as cards and apps. “
Banks obligated and income capped
While banks are mandated to provide both online and offline services, other payment providers can choose whether or not to participate. The provision of free services by banks applies to consumers not businesses and to basic services only. They are required to supply dedicated onboarding assistance to people with disabilities, the elderly and the digitally challenged.
Intermediaries have to have contracts with end users, which the European Central Bank is not a party to.
Payment providers can charge fees to merchants and for inter payment provider (inter-PSP) transactions and the European Central Bank (ECB) will cap the fee level. Fees can’t be higher than comparable digital payments and need to be based on costs “with the possible addition of a reasonable profit margin”. Costs will be measured based on the most efficient providers. The legislation states that “Inter-PSP fees or merchant service charges shall provide a sufficient compensation for payment service providers to distribute the digital euro.”
This statement is despite observations that a digital euro could result in lower revenues for certain payment providers.
Who can use the digital euro
Both the online and offline digital currency will have legal tender status meaning businesses have accept it for payments. However, small businesses with less than ten employees or a balance sheet of under €2 million don’t have to accept it, unless they already support digital payments.
Digital euro usage is not restricted to EU residents in the legislation. Visitors and former residents can access the digital currency, and it also provides for non euro EU states and foreign countries to use it. However, these jurisdictions would need to have agreements with the EU, which prevents the EU from infringing on their monetary sovereignty.
Digital euro privacy
The legislation requires privacy preserving measures “to ensure that the European Central Bank and the national central banks cannot directly identify individual digital euro users.” Privacy advocates might be more comfortable if the word ‘directly’ had been excluded. Because the clause explicitly still allows for central bank personal data processing for supervising banks and payment providers.
In order to enforce any holding limites set by the ECB, there payment providers will have to check if a user already has another digital euro accounts when onboarding. The ECB will play a role in this.
Offline usage has some special provisions for privacy forbidding payment providers from retaining transaction data. Anti money laundering procedures will apply to on and off ramps – for topping up and withdrawing digital euros.
The legislation preamble acknowledges that the legislation impacts the fundamental right to private life and the protection of personal data. It says that any limitation on this is only where “strictly necessary”.
The digital euro will not be interest bearing.
Once the legislation is passed, the ECB alone has the authority to decide when to issue the digital euro.