The Eurogroup, a body comprising the finance ministers of EU countries, has waded into the debate about the digital euro, insisting that the new currency be seen as a complement to cash with full legal tender status and a high degree of privacy.
The Eurogroup considers that the introduction of a digital euro as well as its main features and design choices requires political decisions that should be discussed and taken at the political level.
Taking stock of progress, the group maintains that a digital euro should complement, and not replace cash, should be safe and resilient, ensure a high level of privacy, be easy and convenient to use and widely accessible to the public, including in terms of costs for end-users. Ministers also called for considering the environmental implications of the digital euro design.
Privacy is emphasised as a key dimension in the design, while at the same time complying with other policy objectives such as preventing money laundering, illicit financing, tax evasion, and ensuring sanctions compliance.
EU governors suggest a risk-based approach could be followed to allow for more privacy in the case of less risky transactions. The Eurogroup also supports the exploration of an offline functionality which would serve a wider range of use cases and also contribute to financial inclusion.
Interoperability with other Central Bank Digital Currencies is also viewed as another touchstone, including for cross-currency transactions.
"This will also take into account the development of CBDCs by other jurisdictions, in order to reap the potential benefits of faster, cheaper and safer cross-border transactions," states the Eurogroup. "On the other end, the risks associated with the use of a digital euro outside the euro area must be mitigated and monitored."
The tentative endorsement of the project across the Eurozone contrasts with a more critical take in the UK.
Last year a Committee of peers in the House of Lords concluded that there is no convincing case for the creation of a central bank digital currency in the UK.
BofE governor Andrew Bailey has recently questioned the need for a wholesale central bank digital currency given the current upgrades of the payments infrastructure underway in the UK. He is unconvinced about the need for change in retail payments, stating: “We have to be very clear what problem we are trying to solve here before we get carried away by the technology and the idea.”
Former BofE adviser, Tony Yates, has also cautioned against the development in an opinion piece in the Financial Times yesterday. Yates questioned the motivations behind the development of CBDCs, describing them as “suspect”.
“I detect that some are doing it for a vague notion that CBDCs are the future," he wrote. "Others worry that central banks that don’t do a CBDC will lose out in global currency usage.”
He argues that the supposed efficiencies of CBDCs would not outweigh the massive costs central banks would incur by building and staffing the necessary IT infrastructure and processes.