Digital euro may benefit banks in ways stablecoins can’t – Cipollone

Piero Cipollone this week tried a subtly different approach to persuade lenders in the eurozone to sign up to a central bank digital currency.

During a speech on July 10 in the Slovenian capital Ljubljana, the European Central Bank board member with responsibility for the digital euro repeated the usual benefits of the CBDC: that it would be a free, pan-European digital currency, with privacy, resilience and universal acceptance at its core.

However, this time around he also highlighted that alternatives to a CBDC, such as stablecoins, would result in banks losing “fees and data”. The digital euro, he said, would enable banks to maintain client relationships, as it would be a “public-private co-operation”, with European payment service providers playing a key role in its distribution.

Stablecoins were currently “dominated by non-bank and non-European issuers and mostly denominated in dollars”. Their usage was still relatively small, he said. But if they became entrenched and more popular, this could make Europe’s money dependent on “the kindness of strangers”.

Europe’s current dependency on US payment providers, specifically card issuers, was already forcing merchants to pay higher fees, Cipollone noted. Some €3 billion ($3.5 billion) was being spent on card processing fees each year and the current state of affairs also meant the ECB was losing out on seigniorage.

Two-thirds of card-based transactions in the eurozone were being processed by international schemes, such as Mastercard, Visa or American Express, and 13 countries in the bloc, including Slovenia, were “entirely dependent on non-European systems for payments”. This undermined Europe’s strategic autonomy, as “decisions outside Europe” could affect European consumers’ ability to make payments.

European banks had failed to unite the market and create a continent-wide payment system in part because of the profitability and deep-rooted nature of national payment schemes, Cipollone said. This, he added, was a mistake the ECB could help to rectify by introducing a digital euro.

“European providers do not have the incentive or the capacity to invest in competitive, user-friendly front-end solutions across the eurozone,” he said.

Cipollone reiterated that the digital euro would complement cash, not replace it.

“Just as the introduction of euro banknotes united Europe 23 years ago and brought tangible benefits to its citizens, the digital euro has the potential to create a truly integrated digital payments landscape that preserves the two-tier payment system and the healthy equilibrium between public and private money that has served us so well for so long,” he said.

It would also give European payment service providers the “scale and certainty” they needed to innovate and expand.

Cipollone said conditional smart contracts could be built around the digital euro. Citizens could, for example, receive automatic reimbursements in the event of train or flight delays.

“This will increase choice and stimulate innovation, leading to a richer and more user-friendly experience for everyone,” Cipollone noted.

The digital euro, in the board’s member words, would embody Europe’s “shared values of openness, resilience and fairness”, as it would be a “public commitment to the future of Europe’s digital economy”.