Private payment services can gain a monopoly with no benefit to other market players or economic stability, ECB board member Fabio Panetta said.
The European Central Bank (ECB) is quite happy with the European Commission’s legislative proposals for the digital euro. ECB executive board member Fabio Panetta told the European Parliament’s Committee on Economic and Monetary Affairs in a speech on Sept. 4 that the proposals “put Europe at the forefront of advanced economies” in central bank digital currency (CBDC) development, potentially heading off private dominance of the financial sector and the ills that implies.
The European Commission (EC) made its proposals public on June 28. Panetta, a critic of cryptocurrency, called the EC proposals for the euro CBDC “a new paradigm for preserving monetary sovereignty” that would ensure Europeans always have access to a public payment option, whether it was cash or digital, even as “closed-loop solutions are becoming increasingly prevalent” in private payment services. Panetta compared private payment systems to private messaging, where users are pressured to join the most popular systems.
A digital euro would be a new form of central bank money, says Executive Board member Fabio Panetta. It is now up to legislators to ensure it would replicate key characteristics of cash in the digital sphere, particularly its privacyhttps://t.co/nQJzYylwpV
— European Central Bank (@ecb) September 4, 2023
The EC proposed giving the digital euro the status of legal tender, making its acceptance for payment mandatory. Panetta also praised the EC’s privacy proposals for the digital euro. He specified:
“The Eurosystem would be unable to see the personal details of digital euro users or connect any payment information to private individuals. Intermediaries would only see the user information needed for onboarding and compliance with existing regulation.”
“Furthermore, the possibility to pay offline would provide cash-like privacy, with neither the intermediary nor the central bank processing the payment,” Panetta said.
The proposals also included reasonable pricing policies and allowing the ECB to maintain equilibrium in the financial systems with tools like holding limits. Panetta said:
“Let me emphasise, once again, that the issuance of a digital euro represents an opportunity, not a risk, for the European financial sector.”
The alternative to introducing a CBDC is not maintaining the status quo. Rather, it is losing ground to new private solutions that could impact the economy, Panetta said. He held PayPal’s recently introduced PayPal USD (PYUSD) stablecoin up as an example of potential risk.
Private payment service providers seek to gain market share and have no motivation to restrict their range of services or make them compatible with other services. As a result, a private service could attain a monopoly position on the market, as has happened before, Panetta explained.
In contrast, the digital euro “would pay due attention to orderly adjustments in the financial sector while offering payment service providers a platform for innovations with pan-euro area reach,” he said.