ECB Official Highlights Digital Euro as a Remedy for Private Payment Service Challenges

The European Central Bank (ECB) has expressed its satisfaction with the European Commission’s legislative proposals for the digital euro. In a recent speech to the European Parliament’s Committee on Economic and Monetary Affairs, ECB executive board member Fabio Panetta praised the proposals for placing Europe at the forefront of central bank digital currency (CBDC) development. He highlighted how the digital euro could potentially prevent the dominance of private financial services and the associated challenges.

The European Commission unveiled its proposals on June 28, garnering positive feedback from Panetta, who is known for his skepticism regarding cryptocurrencies. He described the EC’s digital euro proposals as a “new paradigm for preserving monetary sovereignty.” These proposals aim to ensure that Europeans always have access to a public payment option, whether in the form of cash or digital currency, especially in a landscape where private payment services are gaining prominence.

Panetta drew parallels between private payment systems and private messaging platforms, emphasizing how users often feel compelled to join the most popular systems. To counter this trend, the EC’s proposals include granting the digital euro the status of legal tender, making it mandatory for payments. Panetta also commended the EC’s privacy measures for the digital euro, stating that personal details of users would remain hidden from the Eurosystem, and intermediaries would only have access to necessary information for onboarding and regulatory compliance.

Furthermore, Panetta highlighted the offline payment option, which would provide a level of privacy similar to cash transactions, with neither intermediaries nor the central bank processing the payment.

The proposals also encompassed reasonable pricing policies and measures to enable the ECB to maintain stability within the financial system, such as holding limits. Panetta emphasized that the introduction of a digital euro should be viewed as an opportunity rather than a risk for the European financial sector.

Panetta warned against the status quo, emphasizing that failing to introduce a CBDC could result in Europe losing ground to new private solutions that could potentially impact the economy. He cited PayPal’s introduction of the PayPal USD (PYUSD) stablecoin as an example of the potential risks associated with private payment services.

Private payment service providers are driven by the pursuit of market share and are generally not motivated to limit their services or ensure compatibility with other platforms. Consequently, there is a risk that a private service could establish a monopoly position in the market, as has occurred in the past, according to Panetta.

In contrast, the digital euro is seen as a solution that would encourage orderly adjustments in the financial sector while providing payment service providers with a platform for innovative solutions that have a pan-European reach.

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