30 March 2022

ECB's Panetta: A digital euro that serves the needs of the public: striking the right balance

Thank you for inviting me to update you on the digital euro project and the progress made since we last met in November.

We have previously discussed the broad policy objectives associated with a digital euro.^[1] Today, I would first like to highlight some important features which, by making a digital euro attractive to citizens and merchants alike, would help us to achieve these objectives.

I will do so by discussing the findings of the focus groups we held – which we are publishing today on the occasion of this hearing^[2] – and our analysis of “use cases” for the digital euro. In the jargon of payments, this term refers to the payment segments that a digital euro could serve.

I will then present our preliminary findings on how to reconcile the right to confidentiality with the public interest in countering illegal activities, continuing the discussion we had a year ago.^[3]

Meeting the payment needs of Europeans today and tomorrow

The primary aim of a digital euro is to maintain the accessibility and usability of central bank money in an increasingly digitalised economy. But for a digital euro to fulfil this role, people need to be able and willing to use it.

From the outset, I have stressed that a digital euro can only be successful if it meets the payment needs of Europeans today and in the future.

The findings of our focus groups provide valuable input here, though we are mindful of the natural limitations of qualitative analyses of this kind.^[4]

The focus groups suggested that people see the ability to “pay anywhere” as the most important feature of a new digital payment instrument. This emerged in all countries and age groups. It means that, ideally, all merchants across the euro area – both in physical stores and online – would need to accept a digital euro. 20 years ago, the introduction of euro banknotes made it possible for us to pay with physical euros anywhere in the euro area. So it is no surprise that people expect to be able to use the digital complement to banknotes wherever they can pay digitally or online.

Instant, easy, contactless payments, especially for person-to-person payments, were the second-most valued feature. Cash has so far remained dominant in person-to-person payments. And we will ensure that people continue to have access to cash. But the focus groups confirm previous findings: preferences are shifting towards digital payments.^[5] The experience of countries both inside^[6] and outside^[7] the euro area shows that contactless person-to-person payments may grow very rapidly when convenient digital solutions become available.

Participants in the focus groups would like to see a solution that would allow instant person-to-person payments regardless of the platform used by the payers and payees. Today, making mobile payments to friends at the click of a button – for example when splitting bills in restaurants or collecting money for a gift – is often easiest when everyone is using the same app. Participants therefore envisaged a one-stop solution that would reduce the need for multiple cards, devices and identification methods and give them access to a range of payment options on a single device.

Our focus groups also confirmed what I called “rational inattention” during our exchange in November.^[8] People tend not to pay attention to – or understand – the difference between the digital euro and the euros they already spend using private digital means of payment. For the financial system to work smoothly, public money and commercial bank money are meant to be fully interchangeable yet distinguishable. People do not think twice about storing and using their money via private intermediaries because they know they can regularly go to the cash machine and withdraw banknotes without any problems. This provides tangible proof that their money in the bank is safe. Convertibility with central bank money on a one-to-one basis therefore anchors people’s confidence in private money, supporting its wide acceptance.^[9]

The findings from focus groups were also used to validate our selection of possible use cases of a digital euro.^[10] We identified them by looking both at our policy objectives and at the importance of different market segments.

Physical stores are the most important market segment for digital payments, accounting for more than 40 billion transactions in the euro area in 2019.^[11] E-commerce payments are less numerous but are expected to continue to grow rapidly in the coming years.^[12] These segments are served by a multitude of payment solutions, often with only domestic reach. So far, they have been dominated by non-European providers and technologies.^[13]

Given their importance now and in the future, payments in e-commerce and physical stores, as well as person-to-person payments, are natural candidates to be prioritised among the possible use cases of a digital euro. The digital euro could also be used for payments between governments and individuals, for example to pay out public welfare allowances or to pay taxes.^[14]

If a digital euro offered these payment options, we would achieve network effects, continue to ensure public access and full usability of central bank money for digital payments, and help to address sovereignty concerns. In the next steps of our investigation phase, we will therefore focus on assessing the actual feasibility of these use cases.

But we will leave the door open to the inclusion of other use cases in the future. We are monitoring emerging trends such as machine-to-machine payments.^[15] And we are looking into solutions to respond to these trends in future releases of a digital euro.^[16]

In the coming months, and building on the findings of the focus groups, we will carefully investigate how to design an attractive digital euro product that responds to the expectations of payers and payees alike.

Co-legislators have a key role to play. For instance, the ability to pay with digital euro anywhere could be fostered by giving it legal tender status. We are thoroughly and carefully analysing this issue together with the European Commission. We stand ready to discuss the matter further with you, also on the basis of the outcome of the upcoming consultation on digital euro the Commission has recently announced.

The trade-offs between privacy and other EU policy objectives

The legal framework will also be key when it comes to privacy, which is one of the most important design features of a digital euro.^[17]

The public consultation we conducted between October 2020 and January 2021 indicated that protecting privacy is key, so that the digital euro helps to maintain trust in payments in the digital age.^[18] Focus group participants also said they would appreciate options that give them control over their personal data.

It is not surprising that people expect payments in digital euro to guarantee high privacy standards. As payments go digital, private companies are increasingly monetising payment data.

We already provide cash, the payment instrument with the highest level of privacy. We are committed, as a public institution, to retain people’s trust in this area if a digital euro is issued.

At the same time, we need to assess privacy in the context of other EU policy objectives, such as anti-money laundering (AML) and combating the financing of terrorism (CFT). Concerns about regulations being circumvented, including to bypass international sanctions, have become even more prominent recently, notably in relation to crypto-assets....

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