The European Central Bank has released a questionnaire—aimed at both the public and financial experts—in order to gauge their views on a digital euro.
It is currently debating whether to launch a central bank digital currency that would be available alongside cash, rather than serving as a replacement.
The questions asked in these consultations can be revealing in themselves—discreetly raising some of the biggest concerns that regulators have. So Modern Consensus has taken the survey, and we’ll dissect what some of the questions could mean.
Give the people what they want
The first exercise involved organizing a series of nine CBDC features in order of importance—including ease of use, coverage throughout the euro area, privacy, low cost, security, and the ability to make a payment even in the event of an internet outage. One of the options presented by the ECB was rather unusual, and aimed to gauge whether the respondent would want the digital euro “to take the form of a digital device.”
Respondents were also asked about the challenges that would stop them using a digital euro—as well as about features that should be considered to make the CBDC accessible for people who are unbanked or disabled. (As the editor of a German think tank told Modern Consensus last month: “Part of designing a CBDC is accounting for the whole population and making sure that you don’t lock anyone out of the financial system.”)
The ECB also set out two approaches that could be taken with building a digital euro, and asked users which one is more appealing. Designing one that doesn’t need an intermediary could make the CBDC “feel closer to cash payments”—and mean that transactions could be completed offline while “better protecting” privacy and personal data. Although this may sound like the best option, the ECB also warned that, without an intermediary, it might be difficult to integrate a digital euro into existing banking services and applications.
The expert opinion
The next section focused on attracting responses from experts in the finance and technology sectors. In an introduction to the questions, the ECB said: “We want to make sure that its design would not inadvertently constrain industry-led solutions aimed at providing additional features or services which might also benefit citizens.”
Finance experts were asked about the role that banks and payment institutions could play in providing a digital euro to end users—as the intermediary mentioned earlier. Another question said this CBDC could allow banks to offer additional services beyond payments that could benefit citizens and businesses—and respondents were invited to set out the “services, functionalities or use cases” that they think should be considered.
The ECB also asked for solutions to avoid counterfeiting and technical mistakes that could mean the amount of digital euro held by users may not correspond with what has been issued by the central bank. And lastly, finance-focused participants were asked to suggest technical solutions that could make the CBDC more like cash in terms of privacy, offline use, and ease of access for vulnerable groups.
Privacy seems to be something that’s weighing heavily on the mind of Europe’s central bank. Another question said: “What should be done to ensure an appropriate degree of privacy and protection of personal data in the use of a digital euro, taking into account anti-money laundering requirements, and combating the financing of terrorism and tax evasion?”
Specialists were also asked about the measures that the ECB is exploring to manage the quantity of digital euro in circulation—such as limits on the amount a person can hold or tiered interest rates based on someone’s balance—to prevent monetary policy from being jeopardized.
Other revealing questions asked whether use of the digital euro should be limited outside of the trading bloc, and whether smartphones, smart cards and wearable devices can be adapted for use of a CBDC.
What does this all mean?
The survey suggests that the ECB is exceptionally wary of the potential pitfalls that a digital euro can bring—such as compromising the privacy that consumers enjoy with cash, and shutting out large swathes of the population because it is too difficult to use.
The public consultation is ongoing, and a final decision on whether to pursue a digital euro is expected to be made in the middle of next year.
As ECB President Christine Lagarde said last month: “We need to fully reap the potential gains from digital technologies and, at the same time, make sure labour markets remain inclusive. If we don’t, we risk creating a new divide, and we can already see gaps opening up when we look at differences in wages, education levels and gender.”