The digital euro train is chugging along – but to whose benefit?

The European Central Bank’s plans to launch a digital euro are moving along, although it remains unclear exactly what benefits the project would produce. Image: Shutterstock
  • The European Central Bank (ECB) is planning to launch a digital euro: a central bank digital currency that would complement coins and banknotes as a payment method. In October, the ECB’s Governing Council decided to move the project to the preparation phase.
  • Finance Finland fails to see what additional value the digital euro would bring to the already functional and efficient monetary system.
  • Instead, the digital euro carries considerable risks that should be taken into account in the legislation.
  • The European Commission has put forward a legislative proposal on the establishment of the digital euro, which is currently being processed by the European Parliament.

In July 2021, the European Central Bank (ECB) decided to launch an investigation on the possibility to issue a digital euro as part of fintech developments. The final decision on whether or not a digital euro will be issued has not been made yet, but foundations are currently being laid to pave the way for its possible future issuance and roll-out. The European Commission has put forward a legislative proposal on the establishment of the digital euro, which is currently being circulated for comments in the member states. According to the ECB, the earliest the digital euro could be issued is late 2026.

Finance Finland fails to understand the excitement and fuss over the digital euro, considering how minor its benefits seem to be. At the moment, 94% of Finns already use digital payment methods in their daily shopping as is revealed by Finance Finland’s latest survey on payments.

“A digital euro would bring very little additional value for its end users, i.e. consumers. The monetary system that banks have based on deposit money already works effectively and offers customers a diverse array of functional and technologically advanced services. What is the point of creating a complicated and expensive system on top of this, especially one that offers so few benefits for its users?” asks Finance Finland’s Head of Authentication and Mobile Payments Peter Jansson.

Minimal benefits but great risks

Instead of producing clear benefits, the digital euro carries clear risks. Some fundamental questions about the establishment of the digital euro remain open, and these questions have extensive effects on the business model, financing structure, payment systems and intermediation activities of banks. For example, if deposit limits for the digital euro are not determined or are set too high, banks’ financial stability can suffer. It is also problematic if credit institutions are given an obligation to distribute the digital euro without offering them information about how much costs the distribution will incur and how the costs will be compensated.

“Before any final decisions about the future of the digital euro are made, the pros and cons of the project should be weighed carefully. In the worst case, the digital euro can undermine the stability of the financial market and distort market function. It is therefore vital that the questions that remain open are resolved as soon as possible and that the worst pitfalls of the proposal are avoided. This is also our message in our statement to the Finnish Parliament’s Commerce Committee”, says Jansson.

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Infrastructure and Security

Peter Jansson

Head of Authentication and Mobile Payments