On Monday, the European Parliament published a briefing ahead of a vote on whether to proceed with the technical implementation phase of a digital euro. While the report is broadly supportive of the preparatory work carried out by the European Central Bank (ECB), it is not a proponent of a digital euro itself. It casts doubts on the eventual launch of a central bank digital currency (CBDC), arguing that “when in doubt, [one should] abstain (but be prepared).”
The paper assesses the state of preparation for the possible launch of a digital euro, focusing on familiar aspects such as market impact, implications for banks, and privacy. It was prepared at the request of the ECON Committee, the group that will decide in October whether the ECB should move ahead with the next phase of implementation of a digital euro. However, this does not constitute a launch decision, which would involve another vote in the future.
An unusual CBDC perspective in Europe
To date, most ECB and banking association reports have been more or less supportive of the digital euro initiative, only expressing moderate concerns around issues such as disintermediation and remuneration. By contrast, the ECON Committee briefing reflects a much more critical view broadly missing in EU debates. Commerzbank showed a similar pushback in the early days.
For example, the report offers a market analysis to assess how a digital euro would establish itself in today’s highly developed payment ecosystem, arguing that evidence is inconclusive about the actual market need of a CBDC. It notes that specific use cases still need to be properly addressed and that the ECB should clarify whether a digital euro would substitute cash or bank deposits.
Similarly, the author argues that a CBDC would put the ECB in a “radically new situation” that could fundamentally change its relationship with financial institutions. Commercial banks would simultaneously compete and collaborate with the ECB, as the digital euro would be an alternative to bank deposits, but banks would be in charge of all front-end functions for its distribution. Aside from the widespread concerns over compensation, this could also lead to a potential conflict of interest since the ECB would become both a competitor and regulator (not mentioned in the report).
Lastly, the paper provides some considerations on the issue of privacy, noting that suspicions about the misuse of payment information are a top concern among European citizens. According to payment surveys, the people’s preferred solution would be a “middle privacy” option, ensuring payment data is protected from private use but giving access to public authorities in specific, well-defined scenarios, such as AML/CTF checks. Currently, the ECB has said it does not plan to have access to the data, but the position of intermediaries needs to be clarified.
The author concludes that the ECB should continue exploring the potential of a digital euro. Still, absent a well defined problem it’s trying to solve, it should not proceed with an actual launch “unless new elements emerge in the future”.