Digital euro
Frankfurt Cash Club, March 11, 2021
Considerations & Questions (v2)
@dirkbraun

Mairead McGuinness, European Commissioner for Financial Stability,
Financial Services and the Capital Markets Union
"Whoever controls payment systems
increasingly controls our modern,
highly digitalized economies."

01
Assumptions
What do we not
know for sure?
Questions
What do we not
know?
Overview
What do we know
for sure?
02 03

Overview
01 Functions of money, money types,
conditions & the ECB's dilemma

1) Unit of account
2) Medium of exchange
3) Store of value
Functions of money / of the digital euro

Money Flower
Source (adjusted): Deutsche Bank Research (The Future of Payments, Part III.
Digital Currencies: the Ultimate Hard Power Tool)
Bank deposits
Commercial money issued by
commercial banks (deposit insurance)
Central bank digital tokens (retail)
Digital money issued by central
bank (token-based)
Central bank digital currency
Digital money issued by central
banks (account-based)
Cryptocurrencies
Token-based digital money that is not
issued by a central / commercial bank
Virtual currencies
Digital commercial money issued
by commercial banks

CBDCs around the world
Research: Countries that
published multiple research
reports about CBDC and start
experimenting
Development: Countries in the
midst of launching a digital
currency as a small-scale pilot or
moving towards a large-scale
launch
Pilot: Countries piloting CBDC
for domestic interbank or
international use-cases in a real
environment with a limited
number of parties
Launched: Countries officially
launched a digital currency and
issued tokens for transactions
Cancelled: Countries cancelled
or decommissioned a CBDC
Source: www.cbdctracker.org; data as of February 2021
Pilot (11) Research (35) Development (16) Launched (1) Cancelled (9)
Wholesale CBDCs: 23; Retail CBDCs: 61

Hype or future?
Fact: "Everyone" talks about it
60%
of central banks
conduct
experiments or
POCs
86%
of central banks
explore the benefits
and drawbacks of
CBDCs
14%
of central banks
are in develop-
ment or pilot
arrangements
Source: Third BIS survey on central bank digital currency,
BIS Paper No 114, January 2021

Financial innovation life cycle
Quelle: Agustín Carstens, BIS, Money in a digital age: 10 thoughts (November 15, 2018)

"We want to be
ready to
introduce a
digital euro, if
needed"
Fabio Panetta, ECB Executive Board Member and
Chair of the Eurosystem High-Level Task Force on
Central Bank Digital Currency (November 27, 2020)
Source: www.ecb.europa.eu/press/key/date/2020/html/ecb.sp201127~a781c4e0fc.en.html

"We will have a
digital euro"
…she hopes this will not take
more than five years
Christine Lagarde, President of the European
Central Bank (January 13, 2021)
Source: www.handelsblatt.com/finanzen/geldpolitik/notenbank-ezb-chefin-lagarde-
rechnet-mit-dem-digitalen-euro-und-fordert-bitcoin-regulierung/26794238.html

ECB published first results of consultation on
digital euro in January 2021, decision mid-2021
● 8,221 responses , a record for ECB public consultations
● Initial analysis of requested features: privacy (41%), security (17%) and pan-
European reach (10%)
ECB's additional comments
● A digital euro would be an electronic form of central bank money accessible to all
citizens and firms – like banknotes, but in a digital form – to make their daily
payments in a fast, easy and secure way. It would complement cash, not replace it
● A digital euro would combine the efficiency of a digital payment instrument with
the safety of central bank money. The protection of privacy would be a key
priority
● Detailed analysis to be published in spring, ahead of decision on project launch
Source: www.ecb.europa.eu/press/pr/date/2021/html/ecb.pr210113~ec9929f446.en.html

The added value of a CBDC may be higher
outside Europe!
• Efficiency and productivity gains: overall costs of processing payment
transactions could decrease (especially in countries with a high cash
share or underdeveloped payment systems)
• Financial inclusion: e.g. in countries with underdeveloped banking
structures or in countries with large areas with few inhabitants, e.g. island
states or in remote areas
• Sovereignty: payment system operating independently of foreign
sanctions and systems that are controlled by other nations
• Control over payment flows to fight corruption, undeclared work,
money laundering, terror financing, etc.

ECB's reasons to issue a digital euro
Reasons related to core central bank functions
1. Increasing digitalization and independence of the European economy
2. Significantly declining role of cash
3. Other forms of money could become credible alternatives
4. The digital euro might become beneficial for monetary policy
5. Money that works in extreme events (e.g. cyber incident, natural disaster, pandemic)
Reasons related to the broader objectives of the EU
6. Support of the international role of the euro, if needed
7. Improvements in overall payment costs and ecological footprint
Source: www.ecb.europa.eu/euro/html/digitaleuro-report.en.html
The ECB does not mention payment innovation as potential reason (e.g. M2M payments,
micropayments, offline payments, programmable money / smart contracts)

Dilemma: The digital euro must be successful -
but not at the expense of commercial banks!
Disintermediation
commercial banks
Solution with
restrictions
Attractive
solution
The question of whether there will be a digital euro is no
longer an issue - it's just a question of design!

Assumptions
02 Funktionen & Vorurteile

Unjustified prejudices (tbc)
• Removal of cash
• Elimination of anonymous payment option
• Disadvantages of blockchain solutions (crypto assets)
• Volatility against the euro
• no instant settlement
• high transaction prices for full blocks
• online-only

Questions about the design of the digital euro
that can already be answered reliably today
Retail CBDC
no wholesale component (Interbank); support of B2B use-cases unlikely
Distribution via commercial banks
but: separate accounts / wallets at commercial banks with negative effect of liquidity for banks
Solution with restrictions
e.g. amount of max. credit, unattractive / tiered interest rates

Questions
03 25 questions regarding
the digital euro

Does the ECB have the
authority to issue a digital
euro?
#01 - strategic question

Will the digital euro be
defined as legal tender?
(and can we pay taxes using the digital euro)
#02 - strategic question

What regulatory
requirements must
vendors meet if they want
to offer services related to
the digital euro?
#03 - strategic question

It is good that the ECB is
independent from politics -
but should it be controlled
democratically if it has an
increased role going
forward?
#04 - strategic question

How could the ECB bring
the digital euro into a
globally dominant
position?
(or the Chinese government bring DC/EP into a globally dominant position)
#05 - strategic question

Why should commercial
banks offer solutions /
wallets for the digital euro
if they cant leverage the
liquidity or collect fees?
#06 - strategic question

To avoid exclusion, will the
ECB force banks to provide
digital euro wallets for all
European citizens /
businesses?
#07 - strategic question

Can the digital euro be
used free of charge in all
cases?
(and what would that mean for banks and other vendors that provide payment
services for consumers, corporates and merchants)
#08 - design question

Will the digital euro be
token and/or account-
based?
#09 - design question

Will the digital euro be
based on a blockchain?
#10 - design question

Can the digital euro be
transferred offline?
#11 - design question

Will the digital euro be
programmable?
#12 - design question

Which restrictions will the
digital euro have?
#13 - design question

Can the digital euro be
used anonymously?
(and what does "anonymously" actually means)
#14 - design question

Can users transfer the
digital euro
autonomously?
(i.e. without intermediaries and offline - e.g. between their bank-managed wallets
and self-managed offline-capable wallets)
#15 - design question

Is a digital identity a
prerequisite for the use of
the digital euro by
consumers, companies and
machines?
#16 - design question

Does the digital euro pay
interest, or is it - like cash -
non-interest bearing?
(and can users borrow the digital euro to banks or other players to collect interest
– and would that be covered by the "Einlagensicherung")
#17 –design question

Can / will the problem be
mitigated that the money is lost
if the owner destroys his/her
device on which digital euros are
stored in the form of tokens?
#18 - design question

Will the digital euro be
explicitly usable for B2B
business?
(i.e. will there no regulatory limits for transactions, conversions and balances)
#19 - design question

How can the problem be
mitigated, especially in the
B2B and M2M context, that
the digital euro in the form
of a token ties up liquidity?
#20 - design question

If there is a cap on balances in
digital euros, would incoming
payments above this limit
automatically be redirected to a
user's bank account?
#21 - design question

Can a user hold an
unlimited number of
wallets with digital euros
at banks and privately?
(and thus probably overcome potential limitations)
#22 - design question

Does the digital euro,
meet accessibility
requirements for
vulnerable users?
(similar to today's banknotes and coins)
#23 - design question

Will commercial banks
issue digital commercial
money with additional
features?
(and how could it work multibank)
#24 - other question

Can EPI be successful
without a digital euro
component?
#25 - other question

THANK
YOU
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