The European Association of Co-operative Banks (EACB) welcomes the opportunity to respond to the European Commission’s targeted consultation on a digital euro.
EACB’s key messages are as follows:
1. The case for a digital euro for the retail market in Europe is as yet unclear:
• Potential micro and macro financial stability risks are significant: The digital euro could jeopardize the funding base of regional banks such as cooperative banks and particularly those which are mainly funded by deposits as they still perform the traditional functions of retail banks providing credit, in particular to SMEs. This is a great concern of cooperative banks.
• Potential benefits are highly uncertain: The added value of a retail digital euro from a pure consumer perspective would be limited. Today’s commercial banks’ payment and account offer fulfils almost all needs already. For a retail digital euro to add value, it would have to be developed as a fully-fledged payment solution. This would, however, mean it would be an instrument that enters into competition with solutions of the private sector, lead to disintermediation of banks, a significant drop in commission income from offering payment services, and reduce the maturity transformation capacity of retail banks.
2. Wholistic view on digital money is needed: It would be important that regulators and industry form a holistic view of what kind of digital money (retail central bank currency, wholesale central bank currency, tokenised commercial bank money) Europe needs to achieve different policy goals, how urgent they are and who is best placed (central bank or commercial banks) to fulfil the objectives. In this regard, we welcome the Eurosystem’s recent consultation on the use of new technologies in wholesale payments and securities settlement (wholesale CBDC).
3. Safeguards should be put in place: If the ECB nevertheless decides to launch a digital euro for the retail market, necessary safeguards need to be put in place to avoid the negative impacts on macro- and micro financial stability, deposits and funding costs of banks, and competition in payments market:
• Digital euro should not compete with private payment instruments, i.e. it should complement rather than substitute the current 2-tier money system (central bank money and commercial bank money).
• Digital euro should only have basic features and should be up to private entities to offer any additional functionalities attributable to a digital euro, in line with the ECB goal to create “an electronic form of euro banknotes”.
• The holdings of digital euros in an account or wallet should not be remunerated so as to avoid it becoming a tool to store wealth or invest.
• There should be low and strict limits (maximum amounts) on digital euro holdings for users set by law.
• A digital euro should be introduced only if there is a strong business case. Payments can be free of charge for users, but always come with costs which have to be covered partially by the ECB for the back-end infrastructure and require sustainable business cases at least for the payment acceptance side. The business model for a digital euro should be market driven, transparent and competitive.