Bundesbank board member Burkhard Balz: The digital euro brings with it these opportunities and risks

• The decision to introduce the digital euro will be made in autumn 2023
• The digital euro is still often met with skepticism
• Bundesbank board member Burkhard Balz on the role of the digital euro

ECB CBDC prototype completed

A few weeks ago, the CBDC prototype of the European Central Bank (ECB) reached a new milestone. Reports revealed that the prototype of the digital euro had been successfully tested, completing the second phase of testing. Unlike Bitcoin, Ethereum and comparable cryptocurrencies, the digital euro is not a decentralized cryptocurrency, but central bank money controlled by the ECB, which is intended to serve as a supplement to cash. In addition to various fintech companies, the US group Amazon was also involved in the tests. The project was originally designed for a possible EU-wide introduction of the digital central bank currency between July 2021 and autumn 2023. In autumn the decision will now be made as to whether the digital central bank currency should be introduced or whether the project will finally end. However, ECB Director Fabio Panetta also explains that the introduction of the digital euro can only take place in autumn 2026. He also emphasizes that this should only supplement cash and not – as some feared – replace it.

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Criticism of the digital euro

But even if cash is not to be abolished according to the ECB, there are still some critics and skeptics about the digital central bank currency. In addition to fears about the availability of cash, many are also critical of the lack of data security in the digital euro, as Deutschlandfunk explains. Privacy should be better protected, especially for online payments. On this point, the EU “must make improvements so that the digital euro stops data collection. Anonymity when making digital payments is important,” explains Ramona Pop, head of the Federal Association of Consumer Organizations, according to Deutschlandfunk.

Burkhard Balz on the digital euro

And Bundesbank board member Burkhard Balz recently commented on the opportunities, but also the risks, that the digital euro entails. Balz gave a speech at the School of Economics in which he dealt with the role of the digital central bank currency, as reported by IT-Finanzmagazin. Balz emphasized that many countries are already in a pilot phase for digital central bank currencies and some have even introduced a CBDC. Nevertheless, according to him, there is no standard solution for the introduction of such a system. It would be about ensuring both control over payments and independence from international digital companies, especially from the USA. It is important to discuss the dependencies of states and central banks on these companies. It is noticeable that the trend towards digital payment solutions is accelerating, and in this context a currency system can offer answers and alternative concepts. “A digital euro would preserve access to secure central bank money for everyone in the digital space. If the use of cash for payments continues to decline, it will threaten the role of public money, the cornerstone of our monetary system. The convertibility of private money into public money is an important cornerstone of our two-tier monetary system,” says Balz.

According to Balz, the success of the digital euro depends on a number of framework conditions. He mentioned, for example, the broad usability without undesirable side effects, i.e. a universality that is otherwise known from cash – both in shops and between private individuals and also in e-commerce. In order to finally be able to get all consumers on board, a wallet and a physical card would be needed as manifestations. “The Eurosystem does not intend to become a commercial bank for 340 million European citizens. Instead, we want to use the longstanding expertise of the banking sector at the customer interface. We want to preserve the traditional roles in the monetary system, with the central bank in the background and banks and payment service providers at the customer interface “, he explains. In addition, the digital euro must be introduced in such a way that it can be expanded to include additional and new future-proof business models. This requires an infrastructure that is future-proof from the outset.

He also emphasized that security and data protection are key issues when introducing a CBDC. Above all, it is about the trust of the population and protection against fraud. Personal data should therefore only be processed in a limited manner and in strict compliance with data protection laws. “The success of the digital euro cannot be taken for granted. For such a fundamental technological change as CBDCs, we need rigorous analysis and open-mindedness,” he finally declared.

Editorial office finanzen.net