Public money: keeping up with the times
'Why do we need a central bank digital currency? To keep up with society. To pursue
strategic autonomy. And to maintain access to public money in a digital world.' With
these words, Klaas Knot concluded his opening remarks to The European House
Ambrosetti's panel on 'Central Bank Digital Currencies CBDCs: The Future of
Money', on  April .
Published:  April 
Hello everyone. It is a pleasure to be back in Italy. Back at the Lago di Como. Back at the Villa
d'Este.
Lake Como has been drawing people to its shores ever since Roman times. So, it is no wonder
it does so too, today  and not only physically, like us, but also in the digital world.
Apparently, somewhere on the digital shores of Lake Como, the first socalled Metaverse
Mansion was built. So, also in cyberspace these shores are a desirable place to spend time.
Everywhere you look, the world around us is digitalising rapidly.
And so, you might ask: isn't it high time for the coins and banknotes in our wallets to do the
same? Isn't it high time for our central bank currencies to go digital? And the answer is, of
course, yes.
Let me elaborate on three reasons why central banks around the world are investigating
CBDCs.
First, our banknotes have stood the test of time, but central banks are making sure that they
also keep up with the times. As the world is digitalizing, so are central banks.
 DNB & Shutterstock
Let me start by taking you back to what you can see on the left side of this slide.
On this picture, we are back in , where we find ourselves in a Dutch supermarket. And
what we are witnessing here, is the very first time someone, somewhere in Amsterdam, used
a card instead of cash to make a payment.
In the meantime, the world of digital payments has evolved rapidly  we went from card, to
contactless, to mobile phone and, today, even a ring.
And the cash in my wallet...? Well, on my next slide, you can see the evolution of a banknote.
From  till now.
 DNB & Shutterstock
Don't get me wrong, banknotes have definitely undergone a lot of innovations. While
banknotes date back to seventh century China, today's security features and materials are
very much up to date. Banknotes have stood the test of time  and they continue to do so.
But, however much that may be the case, the leap into the digital realm has not been made.
Not yet.
With such a leap into the digital realm, we would extend the public's trust in physical
banknotes to the digital world. To do so successfully, a banknote's digital twin must have the
same features as physical banknotes have today.
No one needs to know what you pay for with digital euros  just like with cash. The
balance, though, between privacy and other public policy objectives, like countering money
laundering and illicit activities, is ultimately for the European colegislators to decide.
Everyone must be able to use the digital euro, including the less digitally savvy. Just like
cash.
Everywhere in Europe, at every point of sale, to every other person, you should be able to
pay with the digital euro, just like cash.
Digital euro holdings will not be remunerated, in line with the nonremuneration of cash.
Indeed, the digital euro will have all the good things of cash. Most notably the offline
functionality, which is to be offered from the outset, will be instrumental. Offline is the
embodiment of a digital version of cash, bringing true and unique added value to consumers
and retailers, not just in my home country. A digital euro must provide for both online and
offline use cases to fulfill the promise of being able to pay with public money anywhere in
Europe at any time.
 DNB & Shutterstock
A second reason why we are investigating the digital euro is that it will provide a public
answer that  together with private solutions  will lay the puzzle for a more integrated
European retail payments market. Digitization has brought innovative solutions to the
European payments market, but two characteristics stand out:
One  our European retail payments market is heavily fragmented along national lines;
And two  our European digital payments market is, essentially, dependent on nonEuropean
technologies or nonEuropean parties.
To cut to the chase: currently, we do not have a panEuropean digital retail payment solution
of European origin. And though this doesn't have to be a problem in normal times, it does raise
questions about European strategic autonomy in adverse times.
Because no matter how you look at it, payments  whether cash or digital  are like water,
electricity and gas for our economy. They keep our economy going.
And so, to increase the resilience of the European payment system, for whatever the future
holds, we will likely need the digital euro  as a digital panEuropean means of payment,
supporting Europe's strategic autonomy in payments.
This being said, a digital public currency will not crowdout private initiatives. On the contrary,
it will rather support 'crowdingin'  as it will pave the way for, and coexist with, private
solutions of European origin. And so, it is encouraging that private parties are now also
stepping up their game in developing panEuropean retail payments solutions.
Third, the digital euro meets society's demand for public money.
Today, there is a clear downward trend in the use of cash to make payments  as you can see
on the next slide.
In the Netherlands, only one in every five transactions at a point of sale is made in cash.
There is an overall decline in paying with cash. And this means that the role of public money in
our economy is declining. To a certain degree, this is worrisome.
And although there is no reason to think cash will fully disappear in the foreseeable future;
although the European Commission, on the same day it proposed the draft digital euro
legislation, also proposed a legislation on the legal tender status of euro cash;
the diminishing use of public money could pose a problem, because public money serves an
important goal.
It safeguards trust in our currency, alongside cash.
It safeguards accessibility  all over the euro area, alongside cash.
It safeguards inclusivity  for everyone, alongside cash. And let's not forget that there is still a
demand for cash  from the less digitally savvy consumers, to people who use it for budgeting
purposes, to the elderly, and young people too.
After the 'why?' comes the question of 'how?'. And, as with many major innovations, there are
challenges.
Let me share two with you.
For starters, there are concerns about the impact of CBDCs on financial stability and on the
banking system.
Let me assure you that a digital euro would not upend the healthy equilibrium that has existed
for decades between bank deposits and central bank money, between private money and
public money.
How do we ensure financial stability? The digital euro would be designed as a means of
payment  and not as a store of value. As such:
Digital euro holdings will not be remunerated, in line with the nonremuneration of cash.
There will be a holding limit on digital euro holdings  without constraining users' ability to
pay with the digital euro. Users can link their private bank account to their digital euro
account through a reverse waterfall functionality.
Merchants and businesses would have a zero holding limit.
Because of these mitigating design features, the digital euro will not fully mirror cash as a
store of value. Nevertheless, the store of value function of cash is already diminished by the
fact that it is unremunerated and that you could lose it.
Next to concerns about their potential impact on financial stability, some parts of the
population question our motives for developing CBDCs.
In an era in which public institutions in general are under pressure, central banks are also
grappling with mistrust. We take these concerns seriously. So let me also assure you in this
regard, that there is no hidden agenda. What we are doing regarding the digital euro is taking
place in all openness. Which is also why I am here. Which is also why we are speaking with all
relevant stakeholders, including, but not limited to, retailers, consumers and banks. Ready to
answer any questions and gather feedback.
Ultimately, the introduction of the digital euro is a political decision  not one made by
technocrats. As such, it is a decision backed by the whole of society.
In Europe, it is currently up to the colegislators to give the green light to the digital euro.
They will need to establish the legal framework for the ECB to issue the digital euro.
This is, of course, not an easy task  because it will lay the foundation for the euro in the
digital age. And so, thorough discussions are taking place in both politics and society.
Privacy is one of the topics of discussion.
It is clear that different jurisdictions working on CBDCs have different social and political
systems, and with that, different understandings of privacy.
From my apolitical stance, I can only assure, once more, that privacy is a central pillar of the
digital euro design. Let there be no misunderstanding: the Eurosystem would not be able to
identify users through the transaction information we get.
Moreover, being discussed in the political union with the strongest privacy and security laws in
the world, the digital euro will, of course, comply with all EU rules on data protection. This is
essential for the necessary political and societal support.
Let me wrap up.
I started my presentation with a question. 'Why do we need a central bank digital currency?'
After what I have just told you, the answer could be summarised as follows: to keep up with
society. To pursue strategic autonomy. And to maintain access to public money in a digital
world.
Banknotes belong to all of us. They have stood the test of time, and  if you ask me  will
continue to do so. And as we prepare them for what lies ahead, we will keep an eye on
financial stability risks and leave it to politics to decide. We will not venture into a vacuum. The
digital euro will not exist in isolation, but will take its place in an integrated European
payments landscape.
 DNB & Shutterstock
And with this conclusion, I find myself paying tribute to our host's  The European House
Ambrosetti's  tagline. This tagline says: 'Proud of our past. Propelled towards the future.'
Well, let that be exactly how I feel about our European currency.
Thank you.