Fabio Panetta: Building on our strengths - the role of the public and
private sectors in the digital euro ecosystem
Introductory statement by Mr Fabio Panetta, Member of the Executive Board of
the European Central Bank, at the Committee on Economic and Monetary Affairs
of the European Parliament, Brussels, 29 September 2022.
* * *
I am glad to be here for our quarterly exchange as we are about to start the second
year of the investigation phase of our digital euro project.
Over the past year we have already discussed several key aspects together. In March
we focused on the issue of privacy, the use cases for a digital euro and a possible
1
offline functionality. And in June we considered how the digital euro could be designed
2
to avoid it having a negative effect on financial stability.
Following our exchanges with you and other stakeholders, which provided us with
valuable input, the ECB's Governing Council has now endorsed a first set of
3
foundational design choices that cover these issues.
In particular, we will explore options that could allow the digital euro to replicate some
4
cash-like features and enable greater privacy for low-value transactions. Moreover,
5
limit and remuneration-based tools will be embedded in the design of a digital euro to
avoid an excessive use as a form of investment.6
We can now proceed with the analysis of further design choices. We will review the
overall design of a possible digital euro next year, once all choices have been made.
I must stress that the Governing Council's approval of this first set of design choices
has no bearing on whether or not we decide to move to the realisation phase - a
decision that is likely to be made in October next year. It also has no bearing on
whether or not we ultimately decide to issue a digital euro.
Throughout the remainder of the investigation phase, I will continue to hold regular
hearings with this Committee. I will do so in parallel to your legislative discussions about
a regulation to establish the digital euro, which the European Commission plans to
propose in the first quarter of next year.7
Today I would like to discuss two topics with you. First, the role of the Eurosystem and
private market participants in the digital euro ecosystem. And second, how we envisage
the digital euro being distributed to its users.
Harnessing synergies throughout the payments process
The combined efforts of the public and private sectors were key to building the
European payment system we have today, which is one of the most efficient in the
8
world. We now need to draw on this cooperation once again in order to build the digital
euro ecosystem. This will ensure both that public money is made accessible in digital
form and that innovative pan-European retail payment solutions can emerge.
The Eurosystem has extensive experience in offering cash-like risk-free assets and
providing the underlying payment infrastructure. And the private sector has a wealth of
expertise in distributing payment products and interacting with end users. We need to
harness these strengths to generate synergies and satisfy the needs of users in a
fastchanging payments landscape.
The role of the Eurosystem
Holding a digital euro would mean holding a direct liability of the central bank - as is the
case with banknotes today. This means that digital euro would be on the balance sheet
of the Eurosystem. And the Eurosystem would be liable for any mistake made in digital
9
euro settlement. It is therefore of utmost importance that the Eurosystem retains full
control over digital euro issuance and settlement. The best way to achieve this is to
have the Eurosystem performing the settlement activities for the intermediaries that
distribute the digital euro to end users.
This is fully consistent with the objective of safeguarding the privacy of end users. We
can design the digital euro to ensure that the Eurosystem only processes data to settle
transactions with no possibility to track payments sent or received by any specific user.
Strict segregation of data between intermediaries and the Eurosystem, as well as
privacy-enhancing techniques, would ensure that the Eurosystem cannot link any
visible data to the identity of a digital euro user.10
The fact that settlement is performed by the Eurosystem does not imply that we would
manage the accounts of users. The digital euro accounts and the associated payment
operations would be offered and operated by private intermediaries, as is currently the
case for the bank accounts and services that customers are already used to.
The Eurosystem could rely on either traditional or distributed ledger technology for
settlement activities. We have not yet taken a decision about which technology would
be best suited for a digital euro but, when we do, we will consider efficiency, safety and
integration with customer-facing services, as well as the environmental impact.
The role of intermediaries
Over the past year, we have been investigating how to design a digital euro that meets
the expectations of Europeans. Our investigation took into account detailed analyses of
payment habits, insights from focus groups, and feedback from you and from key
stakeholders.
The intermediaries that would distribute the digital euro have in-depth knowledge and
unique insights into what users need. They are thus best placed to be the direct
counterparts for the individuals, merchants and businesses that would use the digital
euro. These intermediaries would open accounts and wallets. They would conduct
know your customer and anti-money laundering checks. And they would provide the
devices or technology needed to pay in physical stores, online or person to person.11
For example, an app could be used for direct payments between two people, and an
online interface could be used when shopping online. Our investigation of these devices
and technologies - the so-called form factors - is ongoing.
We will develop prototypes to explore a variety of user interface solutions for making
payments with digital euro. This is a learning opportunity, and will contribute to our
design analysis in the subsequent phases of the digital euro project. We expect to
publish our results in the first quarter of next year.12
Intermediaries would also have a role to play in the funding and defunding of users'
13
holdings in digital euro. Users could either fund their digital euro accounts or wallets
with cash, or they could convert commercial bank money - that is, bank deposits - into
digital euro. Conversely, they could convert digital euro into cash or move money from
their digital euro account to their bank account.
Finally, intermediaries will be responsible for transaction management tasks, in a similar
manner to current payments. This means they will be responsible for initiating
transactions in digital euro, as well as customer authentication and transaction
validation.
Establishing a digital euro scheme to make the digital euro available
to everyone
Let me now turn to how we could best distribute the digital euro.
We want to ensure that everyone in the euro area would be able to pay and be paid in
digital euro. This should be the case irrespective of the entity with which they open their
digital euro account or wallet and the country they are from. We also want to make a
digital euro available to people who currently have no or limited access to digital
payments, in order to improve financial inclusion. And a digital euro should foster
innovation in the payments market, enabling intermediaries to develop novel solutions
rather than discouraging them or crowding them out.
We have thoroughly investigated different distribution models, assessing them against
the key objectives of our digital euro project. We have also examined what has worked
well in the past when it comes to developing payment solutions covering the entire euro
area - such as the Single Euro Payments Area (SEPA) project, which allows European
consumers, businesses and public authorities to make and receive payments under the
same conditions.14
We believe that a digital euro scheme - that is, a single set of rules, practices and
standards - is best suited to achieve our objectives.15
A digital euro scheme would provide a common framework for euro area intermediaries
to develop products and services built on a digital euro. It would establish a set of
common operational rules and technical standards that intermediaries would need to
16
follow in order to provide digital euro solutions to end users. And it would help create
a specific brand so that, should the digital euro be introduced, people and businesses
would know that they are paying with it.
Thanks to that recognisable brand, a digital euro scheme would strengthen the role of
the digital euro as a monetary anchor alongside cash. And thanks to the benefits in
terms of standardisation and interoperability, the scheme would also support our
strategic autonomy and economic efficiency.17
A digital euro scheme would respond to the different interests of different market
participants - individuals, merchants, businesses and intermediaries.
For individuals, it would mean that they have the same experience when making a
payment no matter where they are in the euro area. They would be able to use digital
euro in different settings, whether they are having dinner in a restaurant, buying
something online or transferring money to a friend.
18
For merchants and businesses, meeting customer demand is key. A digital euro
scheme would provide a single standard, making it easier to respond to customers'
preferences for a simple payment solution. Standardisation would also reduce
adjustment costs and facilitate integration with merchants' back-end systems.
And for intermediaries, the scheme would enable them to distribute the digital euro and
to build on it to develop further innovative solutions for their customers. It would offer
the standardisation and harmonisation needed to foster market innovation across the
entire euro area.
In this context, we will soon start work on a rulebook for the digital euro scheme. Putting
in place a set of rules from an early stage is crucial for the market to be able to develop
digital euro solutions and be ready if and when a digital euro is introduced. We will work
together with different stakeholders - intermediaries, consumers and retailers - so that
they can contribute their views and expertise as the scheme is being developed.
Conclusion
Let me conclude.
A well-designed digital euro would bring benefits for everyone. It would provide a
payments solution for anyone needing to make or receive a payment. It would ensure
that a standardised infrastructure is available to everyone. And it would serve as a
strong foundation for intermediaries to offer payment services throughout the euro area,
thereby fostering competition and innovation.
Cooperation between the public and private sectors is crucial to make the digital euro a
reality. The Eurosystem and the intermediaries involved will have a key role to play,
drawing on their respective expertise.
Successful cooperation will require a pricing strategy that provides adequate economic
incentives to foster the adoption of the digital euro. We are currently analysing a
possible compensation model for the digital euro, a topic that is also relevant for the
European Commission. I stand ready to discuss this with you in the coming months, as
well as other important aspects of the digital euro that we are currently investigating.
I now look forward to your questions.
1
Panetta, F. (2022), "A digital euro that serves the needs of the public: striking the right
balance", introductory statement at the Committee on Economic and Monetary Affairs
of the European Parliament, Brussels, 30 March.
2
Panetta, F. (2022), " The digital euro and the evolution of the financial system ",
introductory statement at the Committee on Economic and Monetary Affairs of the
European Parliament, Brussels, 15 June.
3
ECB (2022), " Progress on the investigation phase of a digital euro ", September. The
Eurosystem first establishes staff positions on the major design issues and
policyrelevant aspects of a digital euro. These are then discussed with external stakeholders
before the Eurosystem High-Level Taskforce makes a final assessment. The ECB's
Governing Council then approves the design options. Further information on the project
governance and the key milestones and project timeline is also available on the ECB's
website.
4
For other transactions, the baseline will be to provide people with a level of privacy
equal to that of current private digital solutions.
5
Quantitative limits on the holdings of individual users would limit the individual take-up
or the speed of deposit conversion. Remuneration-based tools could be calibrated to
make large digital euro holdings above a certain threshold unattractive compared with
other highly liquid and low-risk assets.
6
As regards the design of the transfer mechanism used to validate transactions, the
Eurosystem will further explore a digital euro solution in which transactions would be
made online and would be validated by a third party, as well as a peer-to-peer validated
solution for offline payments.
7
In the first quarter of 2023 the European Commission is expected to publish a
proposal for a Regulation to establish and govern essential aspects of the digital euro
as a new form of central bank money.
8
For instance, the Single Euro Payments Area (SEPA) has become a model of
successful partnership between public institutions and private intermediaries. See
Panetta, F. (2022), "Bringing European payments to the next stage: a public-private
endeavour", keynote speech at the European Payments Council's 20th anniversary
conference, Frankfurt am Main, 16 June.
9
Settlement can be defined as the completion of a payment transaction with the aim of
discharging end users' obligations through the transfer of funds. The two technical tasks
that enable transactions to be settled are: i) settlement validation - checking the payer's
money availability/integrity to assess whether such money can be transferred from
payer to payee; and ii) settlement recording - bookkeeping of money, referring to the
actual transfer of money from payer to payee and a snapshot of the digital euro in
circulation.
10
Ensuring privacy requires the recording of holdings/transfers of money to be delinked
from the specific payments/users involved. For more information on the foundational
privacy options, see Panetta, F. (2022), "A digital euro that serves the needs of the
public: striking the right balance", introductory statement at the Committee on Economic
Monetary Affairs of the European Parliament, Brussels, 30 March; and ECB (2022),
"and Digital euro - Privacy options ", presentation to the Eurogroup, 4 April.
11
For more information on the use cases, see Panetta, F. (2022), "A digital euro that
serves the needs of the public: striking the right balance", introductory statement at the
Committee on Economic and Monetary Affairs of the European Parliament, Brussels,
30 March.
12
During the investigation phase, one of the planned activities is a prototyping
exercise, to be completed by the end of the first quarter of 2023. This is a learning
exercise to test compatibility with existing systems. There are no plans to reuse these
prototypes in the subsequent phases of the digital euro project. We have run a public
call for expressions of interest for joining the prototyping exercise. All interested parties
had to fulfil several "essential capabilities" that were outlined in the call, e.g. data
protection/privacy compliance. We assessed which providers best matched the
"specific capabilities" required for specific use cases. See ECB (2022), "ECB selects
MIP
external companies for joint prototyping of user interfaces for a digital euro ", News,
16 September.
13
Users will have the option to choose whether the conversion of commercial bank
money or cash into digital euro, and vice versa, should take place manually or
automatically. For the automatic option, we are investigating a waterfall functionality
that would allow users to make or receive payments in digital euro above the holding
limit by linking a digital euro account to a commercial bank account. When receiving a
payment, this would allow automated conversion of retail CBDC in excess of a holding
threshold into a bank deposit held in a linked commercial bank account chosen by the
end user. Similarly, a reverse waterfall would ensure that end users can make a
payment even if the amount exceeds their current digital euro funds. Additional liquidity
would be pulled from the linked commercial bank account and the transaction would be
completed in digital euro at its full value.
14
The Eurosystem's SEPA Migration Impact Assessment noted that, in the context of
the growing technical complexity of payment services in Europe, one of the lessons that
can be learnt from the SEPA project and the implementation of the revised Payment
Services Directive (PSD2) is that technical standardisation and development of the
scheme would ideally be completed before legislation to mandate its use is introduced.
15
For instance, the Eurosystem might only be responsible for issuing the digital money,
without providing the settlement infrastructure or intervening in distribution - the
"issuance model". Alternatively, in an open access model, the Eurosystem would only
provide the settlement infrastructure and set access rules; every entity that fulfils these
rules could then use the infrastructure in their own way. While they give the market
room to innovate, these two models may not achieve widespread distribution to end
users or sufficient interoperability, which would hamper the end-user experience and
financial inclusion. One could also imagine an alternative distribution model in which the
Eurosystem would provide the full payment product in an end-to-end solution. While this
model could ensure a homogenous end-user experience and widespread distribution, it
would reduce the role of intermediaries and could pose challenges in terms of meeting
end-user demands and keeping up with innovation.
16
A digital euro scheme would provide the foundation for the development of various
end-user solutions using digital euro and facilitating interoperability between different
end-user solutions. In addition to setting basic operational rules, the scheme might also
recognise further optional services that would allow participants to provide
complementary services to meet specific customer demands. The Eurosystem would
need to take policy decisions, in line with EU legislation, on: who would own the
scheme; who would manage the different elements of the scheme; which technical
elements would be covered by the rules of the scheme; and which type of entities would
be able to participate in the scheme. The Eurosystem could also define a digital euro
brand that is recognisable to end users and could set certain commercial rules for the
provision of digital euro payment services.
17
ECB (2022), " The case for a digital euro: key objectives and design considerations ",
July.
18
Kantar Public (2022), " Study on New Digital Payment Methods", March.