The EACB understands the need to discuss, reflect and research the topic of a digital euro for Europe. Indeed, we acknowledge a digital euro is being considered as response to the emergence of private stable coin initiatives around the globe, multiple Central Bank Digital Currency projects by foreign central banks (like in China and the US), as well as market dominance by non-EU payment service providers, which might undermine financial stability and monetary sovereignty of the EU. Cooperative banks would have a number of recommendations to the Commission, Council, Parliament and ECB to ensure that the digital euro will deliver the right outcomes:
- Take sufficient time to ensure that the consequences of the introduction of a retail digital euro are fully understood before deciding on its launch
- Maintain the division of roles between central banks and commercial banks: The well-proven division of tasks between central banks (monetary and currency policy) and commercial banks (respond to user needs such as provision of cash, payment solutions, granting loans) should be continued to ensure stability of the financial system.
- Set low holding and transaction limits: Holding limits should be low and there should be a limit per citizen (maximum EUR 500). In addition, transaction limits should be set by putting restrictions on the reverse waterfall mechanism. These mechanisms are necessary to minimize the risk of deposit outflows affecting the capacity to lend (disintermediation) and of crowding out private payment solutions.
- Focus on bearer-based digital euro first, rather than an account-based one: a bearer-based solution can more easily mimic some of the advantages of cash (more privacy by design) than an account based version while at the same time still fulfilling many use case requirements; it would add to the current payment offering rather than compete with it.
- Do not allow remuneration of digital euro holdings: The digital euro should under no circumstances be interest bearing, otherwise it would become a means to store value (and not a means of payment), and could become a driver of potential liquidity outflows from commercial banks.
- Ensure the right balance between privacy and traceability: the design of the digital euro should strike the right balance between privacy for digital euro users versus traceability for AML/CFT purposes, at least on the same level as existing card or electronic fund transfer regulations to avoid regulatory arbitrage.
- Foresee distribution by regulated intermediaries: The distribution of digital euro should only be performed by regulated intermediaries, and should be limited to intermediaries that are allowed to serve accounts and hold funds under the Payment Services Directive and have an account at the ECB or at a national Central Bank. Intermediaries should have the choice of whether or not to distribute the digital euro.
- Allow for a sustainable business model: The costs to regulated intermediaries stemming from introducing the digital euro and the implementation of the infrastructure required to support it, should be compensated.