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The launch of the digital euro: opportunities for innovation

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6 Mins.

The ECB has joined a long list of other central banks investigating the possibility of a digital currency. G+D’s Tanja Heßdörfer and Raoul Herborg consider the innovative opportunities that could arise from the launch of a European Central Bank digital currency

In mid-July 2021, the ECB confirmed that it is in a two-year investigation phase of the digital euro, with sights set on a 2026 launch.1 It is a bold step for the payment industry, and one that could see exciting new opportunities open up within Europe.

G+D Director Business Development CBDC Tanja Heßdörfer and G+D Business Lead Digital Currencies Raoul Herborg discuss the challenges – and the many opportunities – that come with the launch of a European central bank digital currency as a complement to cash.

Digital payment sovereignty within Europe

While the issuance of central bank digital currencies remains largely in the hypothetical stage, over 85% of central banks today are investigating CBDCs.2 The introduction of CBDCs now appears inevitable, and countries such as China and Sweden are in the real-world trial stages of its implementation.

Raoul Herborg notes, “At G+D, we are working with several central banks on CBDCs – including a pilot project in Ghana, for example – and we see that there are countries moving seriously quickly with this topic.”

Herborg continues, “The digital euro plays a role in safeguarding European sovereignty – in digital, monetary, and economic terms. It ensures Europe’s autonomy over the financial flow within the EU, making Europe independent from private players outside of the EU. COVID-19 has shown us that in terms of resilience, it is important that certain critical infrastructures – and payment is one of them – are provided by public local authorities.”

Indeed, Christine Lagarde, President of the ECB, has stated that while it is not necessarily a cause for concern that Europe is dominated by foreign payment service providers, an “increase in protectionist policies” and the “evolving global context” must be considered. “We have a responsibility to ensure that our citizens have a choice and cannot be excluded from the payments ecosystem due to the unilateral actions of others,”3 she said.

The possibilities for innovation

Besides the aspect of sovereignity, “the digital euro could be a great foundation for innovation,” states Herborg. “It could provide a truly interoperable means of payment. From a commercial bank perspective, a digital euro would ensure one standard is utilized by all commercial banks, meaning it is interoperable. As such, the problem of isolated usage for the clients of one commercial bank is no longer an issue. Moreover, the ECB could provide further possibilities for innovation if it were to include programmability as a feature – with a focus on programmable payments.” The benefits of programmable features in a CBDC could change the business world and further advance the economy of things, moving us all into a more digital future.

The launch of the digital euro would also bring about benefits to the European economy, as Herborg adds. “The possibility for innovation posed by the launch of the digital euro could lead to economic growth,” he says. “Payment is a crucial service for the entire economy, and a working, effective solution could heighten efficiency for companies, bring about new business models, and fuel economic growth.”

Commercial banks will play a key role in the deployment of a digital euro. Herborg explains, “As the customer-facing part of the digital euro, commercial banks will be in charge of distributing it – just as they are in charge of distributing the physical euro today.” Here, too, the prospects for innovation are immense. “The cash ecosystem today is huge, and with the launch of a CBDC to complement physical cash, the potential exists to develop new business models. Commercial banks could be an integral part of these new business models and extend their offerings and services.”

“The digital euro could be a great foundation for innovation – it could provide a truly interoperable means of payment“
Raoul Herborg
G+D Business Lead Digital Currencies

Pre-launch considerations

One aspect that must be considered pre-launch is the concept of inclusion, as Tanja Heßdörfer explains. “At G+D, we believe that a CBDC should be available to each and every citizen,” she says. “It should be a universal and inclusive means of payment that can be used by everyone – including children – and without having to have the latest smartphone. Other wallet devices can help ensure CBDC is as universal as possible – the idea of a wristband or a smart card carrying a CBDC, for example. In general, if more people were to have access to digital services, it would definitely help foster inclusion and the growth of the digital economy.”

And then there’s the issue of acceptance – even if the digital euro was available to everyone, would they use it? Heßdörfer sees the need for increased awareness: “On the one hand, people don’t understand what the digital euro is – and thus can’t see the benefits. On the other, people fear that they may lose some privacy. This is something that needs to be taken into account when developing the digital euro – it has to meet the needs of the general public so that it will be used in the everyday world.” Indeed, the ECB public consultation on a digital euro, published in April 2021, confirmed that privacy was considered the most important feature of a digital euro by both citizens and professionals.4

Other challenges concern the technology behind the digital euro. Heßdörfer notes major technical challenges that must be taken into consideration prior to the launch: “A digital euro should enable offline payments, protect the privacy of the users, and the solution should not have a single point of failure.” With the token-based CBDC solution Filia®, G+D has the ability to solve these challenges. Furthermore, the solution follows a pioneering programmability approach to enable programmable payments and pave the way for the future of innovations.

Overcoming challenges to reap the rewards

While the ECB will have to consider a variety of challenges in its investigation phase, the benefits that would come with the launch of a digital euro are significant. Once the challenge of inclusion is overcome – and solutions and prototypes already developed – one of the main advantages is the fact that the digital euro would be a universal means of payment. Herborg explains, “The idea of having something that provides all the benefits of cash for the digital world would be a true advantage for citizens – a means of payment that could be used everywhere.”

Another advantage is that of privacy. While Tanja Heßdörfer remarked that people may hesitate to use the digital euro for  fear of loss of privacy, Herborg argues that the digital euro could actually enhance user privacy: “Today, there is no digital payment method that provides user privacy. For certain payment instruments, your personal data might even be a part of the business model. The digital euro could provide this privacy – at G+D, we are convinced that even in the digital world, you should be able to pay without disclosing personal data.”

The ECB has much to consider in its investigation phase, but we should all be considering its implications and possibilities. New business models will be developed, the possibilities are substantial, and its introduction could revolutionize the way we all conduct payments.

  1. Eurosystem launches digital euro project, European Central Bank Eurosystem, 2021

  2. Ready, steady, go? – Results on the third BIS survey on central bank digital currency, Bank for International Settlements, 2021

  3. Speech: Payments in a digital world, European Central Bank Eurosystem, 2020

  4. ECB publishes the results of the public consultation on a digital euro, European Central Bank Eurosystem, 2021

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