European payment system: Considerations on issuing a digital euro

The European Banking Federation (EBF), integrated by the national banking associations from across Europe, released this paper analyzing potential implications of the issuance of a Central Bank Digital Euro in the European payments landscape, and providing some recommendations on its implementation and final design features, to be taken into account in the “investigation phase” on the digital euro project, currently being carried out by the European Central Bank (ECB).

The report highlights the following aspects:

• The starting point in the European payments system is fine: The European Union has an efficient, secure and well-functioning electronic payments market. The ECB should clarify how a digital euro will fit in this system and what will be the improvements for the public in the already high-quality and cost-effective European payment system.
• The system is not perfect and has some challenges: The main ones are identified in the report: the lack of a ‘homegrown’ pan-European payment solution, the increasing importance of BigTechs in payments and adjacent areas, and the potential impact of global stablecoins and foreign CDBCs. European banks are rising up to these challenges through the European Payment initiative (EPI) and other ongoing developments (for example on instant payments). These initiatives will require significant investments and in order to be carried out, they will need certainty about how the digital euro will impact them, or about what will be the cost to the private sector of integrating the digital euro into the current European payment system.
• The impact of a digital euro on the payments system will depend on its final design features. The report considers some aspects essential for the design of a digital euro, some of which are as follows:

-Consistency with the European Commission and Eurosystem’s Retail Payments Strategies: Clarify the overall vision and strategy of a future EU payments landscape taking into consideration all ongoing innovation and developments in payments. A digital euro as a “raw material” will not be a determining factor in the success of a pan-European payment solution.

-Cost and business models: business models for intermediaries taking their role in offering a digital euro should be possible. It cannot be expected that merchant/corporate acceptance of digital euro can be for free.

-Programmability of payments will be key in the future payments landscape; therefore, it is important to allow for the programmability of digital euro payments.

-Data usage: the digital euro should not aim for transaction data only being accessible to the ECB, as the data should serve to strengthen risk management, improve cybersecurity and consumer protection, and open up new business and innovation opportunities.