Our Founder and CEO Gilbert Verdian shares his thoughts on the latest updates to the draft digital euro legislation and what the changes will mean for financial institutions.

​On 14 February 2024, the EU’s parliamentary Committee on Economic and Monetary Affairs held a meeting to discuss the digital euro. An updated draft of the digital euro legislation revealed several key changes.

Piero Cipollone, member of the ECB’s executive board, was explicit in the commitment to preserve everyone’s freedom to use a public means of payment anywhere in the euro area, even as payments go digital.

Addressing concerns around bank disintermediation
Despite concerns, commercial banks needn’t worry about consumers withdrawing deposits to hold digital euro instead, because it’s been designed as a means of payment, not investment. The introduction of this new currency is designed to complement cash with a digital option for paying with central bank money.

Similarly, while questions around the need for holding fees are somewhat valid, the digital euro is still very much in an exploratory phase. This is why it’s important that banks trial this technology first, in a disciplined, iterative manner. By implementing certain parameters, the ECB can get a better understanding of how a digital euro would work in a real-life setting, before it’s rolled out to customers.

The central bank has also discussed implementing deposit limits as a precautionary measure to help address concerns from banks relating to contagion or risk to other parts of the system. By taking this approach, the ECB can ensure it understands what it means for the end user.

However, while it is reassuring to hear that the ECB is committed to preserving the role and share of central bank money in payments, it’s equally important to clarify that the introduction of this new form of money will not alter how banks operate – hence the safeguards included in the design of the digital euro.

​Permissionless blockchains
The concept of an ‘internet for money’ has the potential to transform the financial services industry. It consists of a combination of interoperable, permissionless blockchains that allow both people and institutions to safely transact on public networks, whilst maintaining privacy and confidentiality. For banks, transacting on these new, large-scale networks can enable them to gain greater distribution, payment acceptance and settlement options.

Until now, public blockchains were typically used for cryptocurrency. Increasingly though, central banks are enabling businesses to run payments on public blockchains, and – if engineered correctly – they can have even greater resilience due to the widespread distribution.

This shift towards permissionless blockchains is a positive evolution in the maturity of blockchain. We’re now seeing the acceptance of broader networks being used, which if combined with the right technology, provide access to greater networks that offer more users, distribution and liquidity.

The need for privacy
Arguably the most important design feature of a digital euro, privacy, continues to remain a topic of discussion. However, the ECB has confirmed that it is working on implementing state of the art security measures to ensure privacy protection.

The central bank has also stated that consumers will be able to use the digital euro offline, offering cash-like privacy to users, where personal transaction details would only be known to the payer and the payee.

While a certain level of apprehension around this new form of money is to be expected, we must remind ourselves that this is often the case whenever we experience significant change. If we cast our minds back to when bank cards were first introduced, we witnessed similar hesitation then too. This may mean that, initially, acceptance of the digital euro is gradual. But regardless, it’s crucial that the ECB continue to uphold the highest levels of privacy throughout future stages of development if they want to gain consumer trust and encourage widespread adoption.

Tackling fraud
The digital euro presents an opportunity to use new tools and technologies that can help tackle the ongoing challenge of fraud. If the ECB wants to maintain trust in the digital euro, it must prioritise effective fraud detection and prevention. This is because if the bank can effectively demonstrate the capabilities of the digital euro and its ability to protect users from fraudulent activities, it can strengthen its reputation.

What’s next for the digital euro?
As the ECB progresses in developing a digital euro, it will continue to iterate design elements, address concerns and optimise benefits. We look forward to seeing how the digital euro continues to evolve, as it provides a unique opportunity for commercial banks, enabling them to launch new and innovative products, address new use cases, and extend their scope beyond domestic markets.

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“The digital euro presents an opportunity to use new tools and technologies that can help tackle the ongoing challenge of fraud.”

Gilbert Verdian
Founder and CEO
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