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The European Central Bank’s (ECB) latest digital euro work suggests that merchants should be obliged to accept the payment method, as the end of the investigation phase gets closer.
A requirement for merchants to accept digital euros could be seen as an opportunity, the ECB has suggested.
“The digital euro could also be given legal tender status by legislators,” ECB board member Fabio Panetta said in a speech to EU parliamentarians.
“If introduced, the digital euro would be a public good, and Europeans would expect to be able to access and use it easily, anywhere in the euro area.”
Panetta suggested that it would be “more beneficial and convenient” for all users if merchants that accept digital payments were obliged to accept the digital euro as legal tender.
For example, he suggested that it would make European payments more resilient and would enhance competition, and this in turn would help to make payments cheaper, with clear benefits for everyone in the euro area.
The ECB wants the digital euro to be simple for people to use right from the off and without the need to change banks.
“In our regular exchanges, consumer associations and merchants have remarked that the best way to ensure broad access for consumers would be to require euro area banks and other payment service providers to make the digital euro available to their customers,” he said.
According to the ECB's latest report on the issuance of a digital euro, it could be made available to euro area residents via existing banking apps or via an app provided by the Eurosystem offering a harmonised entry point for basic payment functionalities provided by payment service providers (PSPs).
Supervised intermediaries, such as banks distributing digital euro, could be required to provide a set of mandatory core services to end-users and could offer additional services.
These could include conditional payments or the ability to split person-to-person payments among multiple parties, the report says.
As for the rollout of a digital euro, the ECB’s proposal is to make it available to euro area residents, merchants and governments in its initial releases.
Non-resident euro area citizens may also have access, the report suggests, provided that they have an account with a euro area PSP.
Access for consumers in the wider European Economic Area (EEA) and selected third countries could be part of the subsequent releases, the report says.
Back to Brussels
Panetta appeared before MEPs to explain the report and take questions on Monday (April 24), which was his first hearing since January.
He defended the project as a necessity, but insisted that no concrete plans would be in place until the end of the investigatory phase in Q4 of this year.
“There is currently no single European digital means of payment that is universally accepted across the entire euro area,” he said in his opening speech.
Therefore, it comes as no surprise that Europeans see the ability to pay anywhere as the most important feature of a potential digital euro.
For this reason, stakeholders should want one of the key characteristics of euro banknotes to be replicated in the digital realm, he said.
“If private intermediaries distribute the digital euro, they should be compensated the same way they are compensated for other means of payment,” said Panetta during the hearing.
Panetta confirmed that users “will not pay anything”.
“But, of course, there will be interaction between the payer and the payee, and the system that is now used by banks to share fees that they generate through this activity is allocated between them with the so-called interchange fees.”
This system could also be used to compensate banks for the distribution of digital euros, he said, with this distribution being mandatory.
Jonás Fernández, a Spanish MEP, meanwhile asked Panetta about the “reduced ambition” of the project.
“Some people are calling into question whether it is necessary to have a digital euro when it is so difficult to distinguish it from any other payment method,” the left-wing politician said.
This echoes a European Parliament-commissioned report that was released last week. In this report, the author suggested that the ECB should make the digital euro more attractive to users, for example.
In response, Panetta said that he agreed “many, not all” EU citizens can pay digitally.
“It is also true that they pay digitally in many shops, but not everywhere. It is true that they have access to digital means of payment, but not always at a cheap cost,” he said.
The ECB is proposing a secure access to digital payments for all citizens, he argued. “In this way, we will protect their freedom to pay.”
He further warned that cash might not be available in the future, hence the need to lay the groundwork for an alternative means of payment.
“We want to secure, easy, cheap access to digital payments, offered by the sovereign.”
This could maximise the opportunity for financial inclusion, offer the possibility to pay offline and give the maximum level of privacy for digital payments.
“We think this is an important project and we think that this is ambitious,” he said.
Panetta said that the ECB is working on making the EU’s payment and financial services system more competitive. “This requires work on several fronts.”
This includes work on a wholesale central bank digital currency (CBDC), which Panetta argued the ECB “already have”.
“This infrastructure already exists, it is called TARGET2,” he said.
This has been used in the last 25 years and put the euro area at the frontier of payment technology, he said.
“We are now assessing whether the technology that we use,” he said, suggesting that this could include looking at Trusted Execution Technology (TXT).
It is anticipated that the European Commission will propose legislation in late May or early June. However, the ECB is not expected to make a concrete decision, even if sources suggest it privately has, until later on in the year.
