FAQs on the digital euro
Q1. Would a digital euro replace cash?
No, a digital euro would be complementing cash, not replacing it. Cash will continue to be available in the euro area. A digital euro would function alongside cash as a response to consumers’ evolving demand to pay digitally, in a fast and secure way.
Q2. What consequences would a digital euro issuance have for the banking sector?
A digital euro should not have negative consequences for the financial sector. To do this, we will take into account the following requirements: i) a digital euro should be mainly used as a means of payment and not become an instrument for financial investments, and ii) supervised intermediaries should be involved in the handling of a digital euro.
Q3. Why would a digital euro be better than stablecoins and crypto-assets?
A digital euro would be central bank money. This means that it would be backed by a central bank, designed to meet the needs of citizens: it would be risk free and respect privacy and data protection. Central banks have a mandate to maintain the value of money, independently of its physical or digital form.
The stability and reliability of stablecoins ultimately depend on the entity that issues them and on the credibility and enforceability of their pledge to maintain value over time. Private issuers may also use personal data for commercial purposes.
There is no identifiable entity liable for crypto-assets, which means that claims cannot be enforced.
Q4. Will a digital euro be based on a distributed ledger technology (DLT) such as Blockchain?
The Eurosystem is experimenting with different approaches and technologies to making a digital euro available. This includes both centralised and decentralised solutions such as DLT. No decision has been taken yet, however.
Q5. Would a digital euro be an alternative currency within the Eurosystem?
No – a digital euro would be just another way to make payments with the euro, our single currency, in Europe. It would be convertible one-to-one with banknotes. A digital euro would respond to citizens’ and firms’ developing preference for digital payments.
Q6. Why would consumers want to use a digital euro?
A digital euro would be a digital means of payment that is as secure, as easy to use and as cheap as cash is today. It would be free of cost for people using it for basic payment needs and could be used everywhere within the euro area.
In a world in which citizens are making more and more payments electronically and in which the digital payments market continues to grow, a digital euro would provide an additional choice for all – households, small businesses and large corporates – to make payments using central bank money.
For payees such as merchants and small businesses, a digital euro would provide an additional means to receive payments from their customers.
A digital euro could also offer advanced functionalities, such as automated payment features or using some form of digital identity.
Q7. What if a non-euro area central bank issues its digital currency before the Eurosystem?
All major central banks are examining the possibility of issuing a central bank digital currency, but this is neither a race nor a competition. There is a common understanding at the G20 level that cooperation is needed when it comes to the international use of central bank digital currencies.
Moreover, thoroughness and safety come before speed: we need a system that works for everybody and is stable from day one. A digital euro requires a certain infrastructure on the part of central banks and the supervised intermediaries involved.
The Eurosystem is collaborating with other central banks to understand the implications of issuing a digital currency for the various economies in question. We benefit by sharing our respective thoughts and experiences.
We are looking into a possible digital euro to respond to our citizens’ needs and plan to rely on European options for payments as a matter of autonomy and sovereignty.
Q8. What is the timeline for introducing a digital euro?
Before taking a decision on whether to issue a digital euro we need to decide on its potential design and test its ability to meet the needs of end users. A number of steps will need to be taken before a digital euro can be introduced.
The ECB’s Governing Council will decide in the coming months whether to begin a formal investigation regarding the possible launch of a digital euro. This would involve a choice of design options and user requirements. We would also look at the conditions under which financial intermediaries could provide front-end services that build on a digital euro. We expect this analysis to take around two years.
The Governing Council would then decide whether to move to the next phase, in which we would work on the development of integrated services as well as carry out testing and possible live experimentation of a digital euro.
We are treating this matter as a priority, but we also need to take the time to do it right. The impact of a digital euro needs to be analysed carefully before taking any decision. We will only introduce a digital euro if we are sure that it would make the financial system more efficient and that we can avoid unnecessary risks.
Q9. Why do you suggest a cap on the “tier one” deposits? How low should the interest rate on the “tier two” deposits be?
We are examining the possible risks to financial stability and monetary policy transmission that could result from the introduction of a digital euro.
If introduced, a digital euro would be an additional payment option rather than a form of financial investment. The Eurosystem is assessing design options that would prevent people holding large amounts of digital euro as a risk-free investment or shifting funds away from bank deposits to a digital euro. Alongside the possibility of setting outright holding limits, another option is tiered remuneration.
If digital euro holdings were to be remunerated, the remuneration of individuals’ holdings for basic retail use in payments (i.e. tier one) would be zero or positive and therefore never worse than that of cash. The remuneration of “tier two” should be a certain level below that of assets which are considered safe, in order to avoid a digital euro becoming a form of investment, since central bank money is the asset which best combines safety and stability.
We have not taken any decision on tiered remuneration or a possible threshold, and may consider alternative options as we continue our analysis.
Q10. What data do you expect to process for payments made in digital euro? Will you be able to trace people’s payment behaviour and share it with government agencies and other public institutions?
The Eurosystem has no interest in collecting payment data from individual users, tracing payment behaviour or sharing such data with government agencies or other public institutions.
A digital euro would allow people to make payments without sharing their data with third parties, other than what is required to prevent illicit activities.
For payments to remain a private matter, different types of data would need to be protected: the user’s identity, data on the individual payment (e.g. its amount) and meta-data related to the transaction (e.g. the IP address of the device used for the transaction).
Users will likely have to identify themselves when first accessing digital euro services, but different degrees of privacy can still be maintained for their payments.
A high level of privacy could also be supported in other ways. For example, users’ identities could be kept separate from the payment data, allowing only financial intelligence units to obtain this information within a well-defined legal framework in order to identify the payer and payee when criminal activity is suspected.