Digital euro ‘would support financial inclusion’ as banks close branches

ECB board member tells Dublin conference that scheme could be launched in four years

A "digital euro" could be launched within four years, and would "support financial inclusion" at a time when the "vast reduction" in the number of bank branches may be affecting vulnerable customers, the European Central Bank (ECB) has said.

Dr Fabio Panetta, a member of the executive board of the ECB, was speaking at a conference on plans for a digital euro at the National College of Ireland in Dublin on Monday.

The digital euro would be an electronic form of money issued by the ECB and the national central banks of the euro zone, and would be accessible to all citizens and firms.

Mr Panetta said the ECB would “ensure that cash remains available”, but that if current trends continue, “we could face a future in which cash loses its central role and its ability to provide an effective anchor as consumers turn to digital means of payment”.

In that event, he said, the small number of global players that have come to dominate certain segments of the payments market, such as card payments and ecommerce, could result in an “uneven playing field” that harms competition and raises data privacy concerns.

“By creating further dependencies on non-European providers, it could increase risks to Europe’s strategic autonomy and threaten monetary sovereignty if central bank money is no longer at the heart of the payment system,” he said.

“Confidence that €1 is €1, whatever form it takes, rests on our ability to convert, at par, private money – such as funds held in bank deposits or digital wallets – into public money, which is the safest form of money available.”

Drastic change

He said the increasing popularity of non-cash payments and the expansion of crypto assets revealed a growing demand for immediacy and digitalisation. “If the official sector – central banks and supervised intermediaries – did not satisfy this demand, others will,” he said.

“For this reason, countries around the world are currently exploring the issuance of a central bank digital currency.

“Digital money issued by the central bank would offer the possibility for everyone to use public money for digital payments. It would be a sound, reliable means of payment designed in the public interest.

“A digital euro would serve as an instrument to accompany the ongoing digital transition in payments.

“This transition is particularly visible here in Ireland, where the financial landscape is undergoing drastic change, with some major incumbent banks withdrawing and fintechs making rapid inroads into the payments market.”

Mr Panetta added that a digital euro would aim to offer a means of payment “that is free, available for all digital payments, and accessible to everyone, everywhere”.

“It would seek to support financial inclusion at a time when the vast reduction in the number of bank branches may be affecting vulnerable customers,” he said.

“Taking Ireland as an example, the number of bank branches declined by one-quarter between 2010 and 2020, and 5 per cent of the adult Irish population do not even have a bank account.

“At the end of 2023 we could decide to start a realisation phase to develop and test the appropriate technical solutions and business arrangements necessary to provide a digital euro. This phase could take three years.”