EU DECODED: Will the Digital Euro strengthen financial security?

euronews (in English)

In this episode we talk about a new payment method that is being studied by the European Central Bank: the digital euro. Do we need another alternative for online payments and could this project have negative impacts on the banking system?

Transcript

00:00Digital and online payments are the new normal for shoppers in Europe, but another method

00:20of payment is being considered, the digital euro.

00:25Do we really need it?

00:26How much will it cost?

00:28And what's the point?

00:29It is already raising these questions among lawmakers and bankers.

00:34That is under the lens on Udicoded this week.

00:38Between 2019 and 2022, cash fell from 72% to 59% as a total share of payments.

00:46By contrast, total electronic money transactions leapt from 4.6 billion to 8.4 billion.

00:54The European Central Bank's planned digital euro would be available on a rechargeable

00:58card, a digital wallet or a mobile app.

01:02A digital euro account could be set up at a bank, a post office or an online platform.

01:08But would people really use it?

01:11I use digital payments because it's easier, I don't have to walk around with cash, it's

01:17on my phone, it's more practical, easier, faster.

01:20I feel that the government has to know where I spend my money and if it's cash, I can

01:25spend it wherever I want.

01:26I've heard of digital currencies, specifically for the European continent, the European Union.

01:33No.

01:34The digital part, at the moment, as I say, I've been through situations of fraud and

01:40suspended cards and attempts to hack my own account, which I confess makes me a little

01:46embarrassed, a little not very safe in relation to that.

01:51But it's possible.

01:53Yeah, it could easily handle more transactions over the borders and when you cooperate with

02:00different companies in different lands.

02:03So yes.

02:04Are you worried about your security when you do digital payments?

02:09Sometimes, but I usually trust the banks.

02:13So if the banks are involved, yes.

02:15Paola, how is the digital euro different from a cryptocurrency such as Bitcoin and others?

02:22Well, unlike cryptocurrencies such as Bitcoin or Ethereum, this version would be risk-free.

02:29What does this mean?

02:31Well, basically, when we have a digital euro or a central bank digital currency, it is

02:37subject to a banking regulation.

02:39So if you have a problem, you can go to the central bank or you can go to your traditional

02:44bank and get some help or support.

02:48Does it mean that the digital euro is not a currency for investments?

02:52People will not make money on it like interest in the banks.

02:55It's just something for their daily lives?

02:57Yes.

02:58The initial idea of this project of the digital euro is basically that it serves as an alternative

03:04means of payment.

03:06So it wants to be as close to cash as possible, meaning that it is free for users, it is accessible

03:15and that it ensures that citizens are protected and that we have financial stability.

03:22So the private banking system is largely against this proposal.

03:28Why?

03:29Well, it's basically that European banks are a bit concerned or sceptical about the added

03:36value of this proposal.

03:38This is mainly because we don't know yet the overall cost of this project.

03:44We don't know exactly which infrastructure we're going to use for this project and it

03:50is also because they fear that they could lose some bank deposits.

03:54The ECB already said that they are trying to ensure that this is just an alternative

04:03means of payment and it is not meant to be a savings vehicle for large amounts of money.

04:10So they would cap with a limit, for instance, so that the banks would not feel too much

04:14of the impact?

04:15Exactly.

04:16They don't know the figures yet, but they are planning to have these holding limits

04:19that they are currently discussing in the ECB as they are in the preparatory phase.

04:24The proposal is currently a bit stalled at the European Parliament because it was supposed

04:28to be voted in April, but that never happened and they just had a briefing or, well, a hearing

04:37with the ECB representatives in September.

04:40Let's look at the pros and cons.

04:42Inclusion is seen as a pro as people with no private bank account or access to Internet

04:47could use it.

04:48Privacy is a thorny issue, but the ECB claims it would not be able to identify payment habits.

04:55Fraud and money laundering could be harder to detect if untraceable.

04:59If too successful, banks might lose deposits and no longer be able to lend.

05:06With us at the European Parliament is Damian Böselager, the Vice Chair of the Committee

05:11for Economic and Monetary Affairs.

05:13Many people are sceptical about the idea of a digital euro.

05:17Do you think it's worth doing?

05:19I find it super exciting.

05:20It is a great innovation to think about more and more people are using digital means of

05:25payment for any sorts of things and we are currently very reliant on, for example, Apple

05:30and so on, which uses credit card payment providers to be able to pay.

05:35Does the EU need to reduce its dependency on Visa, Mastercard, for example?

05:41You can always use your credit card.

05:43It's completely fine.

05:44Nobody is going to take that away from you.

05:45But I think it should be possible to have something similar to handing over a cash note

05:49to also do that on the digital level and the digital wallet together with the digital euro

05:54would allow for that without any form of transaction going outside to a private sector entity,

05:59but just basically via public sector entities.

06:02And I think both is fine.

06:03You should just be able to choose.

06:05And what privacy controls is the European Parliament trying to secure for the digital euro?

06:12It's obviously extremely important that if you have agglomerated a lot of data about

06:16a lot of transactions and about a lot of individuals, you need to make sure that there is anonymization,

06:22that there is a way to make sure that this cannot be breached with cybersecurity issues.

06:26And maybe when the transactions are of a lower value, can be anonymous.

06:31And then only if it's larger transactions should be somehow maybe followable also to

06:36ensure anti-money laundering mechanisms still work.

06:39But I think there's a lot of layers that we can put in.

06:42The United Kingdom and China are moving in this area.

06:45Are you worried the European Union would be left behind?

06:48And here's one moment where we are actually leading, where we can be leading if we come

06:51forward with a good proposal.

06:53But we shouldn't dissect it now with lobby interests from all dimensions.

06:56We should really think about what makes sense and what is the added benefit, as you said,

07:00for the retail industry and for the individual customers.

07:02Just to add, because some people say digital euro would be more about the sovereignty,

07:06the financial sovereignty of the EU.

07:08Is this also a value that you think it's important to safeguard?

07:12I think it could have a big advantage for us as well.

07:14Also because we wouldn't be relying on third country payment providers or even European

07:20payment providers, but we could also rely on a public institution, in this case the

07:24central bank, to be able to do our payments.

07:26That gives you some sovereignty also, some independence.

07:29I think it's important, not just from third countries, but in general from failing banks

07:33and I hope that this will work.

07:35The digital euro may boost Europe's financial sovereignty, but at what cost?

07:41Anyway, it won't be coming anytime soon, if it happens at all.

07:46Any legislation to be agreed in Brussels and with the Member States will take two to three years.

07:52I'll be coming with more EU decoding next week.

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