• Digital euro under investigation
• CBDC as an anchor of stability for the euro in the digital age
• Smart contracts are not possible without blockchain
“A digital euro would be an electronic means of payment that could be used across the euro area. It would be as secure and user-friendly as cash is today. As central bank money issued by the ECB, it would be distinct from ‘private money’. But you could also use it as usual pay by card or app”, writes the ECB on its website and describes the planned digital central bank currency as an anchor of stability for the euro in the digital age. The aim is to strengthen the monetary policy sovereignty of the euro area and to promote efficiency and competitiveness in European payment transactions, read more.
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However, individual statements after a meeting of EU finance ministers on the current status of developments caused a sensation: The digital euro should not have any additional “smart contracts” function. Although there should be the possibility of automatically triggering payments, “programming” of the digital euro is not planned due to the convertibility with euro banknotes and commercial bank deposits. According to IT Finanzmagazin, ECB Director Fabio Panetta also made it clear: “The digital euro would never be programmable money. The ECB would not set any restrictions on where, when or to whom people could pay with a digital euro. That would be equivalent to a voucher. And Central banks issue money, not vouchers.” He differentiates between “conditional payments” such as the classic standing order and “programmable money”.
Smart Contracts and Blockchain
According to the EU analysts, a blockchain cannot map transactions with the digital euro transparently enough – and without blockchain smart contracts are not possible, said Fabio Panetta in an interview with the Handelsblatt. So far, observers had assumed that the ECB would consider DeFi solutions including smart contracts and distributed ledger technology (DLT) from the EU, as IT Finanzmagazin reports. The representatives now described the decision as political, excluding programming that could control asset transactions. The digital euro should not replace cash, but rather complement it.
What happens next with the digital euro? Planned development steps
The investigation phase should be completed by autumn 2023. The legal basis for actually implementing the introduction of the digital euro must then first be created in the EU Parliament.
Fabio Panetta said in an interview with the Handelsblatt that the aim was to rule out any risks to financial stability when developing digital central bank money and to set an upper limit for the balance in digital euros. “The digital euro is the logical next step for our common currency: it would eliminate the fragmentation of payment transactions within the monetary union with a means of payment ultimately regulated by Europeans,” continued Panetta. The ECB will work with banks as supervised intermediaries, as they ultimately act with the users. The ECB does not want to collect personal data and wants to ensure that the privacy of users is protected even with the digital euro. Panetta also reiterates that the ECB will continue to issue cash.
So it remains to be seen whether the EU will actually opt for digital central bank money. Many questions remain unanswered, including how payments outside the EU could be handled. What is certain, however, is that even if the project is implemented, several years of preparation will still be necessary. Even the ECB director cannot say at this point in time whether this will happen within Fabio Panetta’s term of office until 2027.
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