The nevertheless strong attachment of many Europeans to cash is driven by its use for settling smaller amounts: whether it is paying in a restaurant, grocery shopping at the weekly market or the euro coin needed to use the shopping cart – it is impossible to imagine life without cash.
Moreover, cash offers further added value for citizens:
- Payments remain anonymous and there are hardly any data protection concerns.
- Cash is safe, for example from bank insolvency.
- It is not taxed by the state or burdened by negative interest.
- Cash is widely accepted and can be easily transported.
In addition to cash, consumers have the option to pay digitally – for example with their smartphone at the point of sale, their credit or debit card or online payment methods in e-commerce. However, these payments are predominantly made with scriptural money, i.e. money issued by financial institutions. There is currently no digital alternative to the cash issued by the ECB.
The important aspects of cash and the differentiation from digital payment methods are what the ECB wants to investigate for the introduction of a European digital currency. With the recent launch of a two-year analysis phase, work on a digital euro is becoming concrete for the first time. As a result of the analysis it will be decided, among other things, whether and in what form the aforementioned aspects will be taken into account.
The premise is that the digital euro should not replace cash, but complement it. From the consumer's point of view, the digital alternative must represent the highest level of anonymity and security. Consumers need the digital alternative to the euro to be designed in such a way that anonymous payments - at least of smaller amounts at the point of sale – are still possible.
Besides data protection and security, provision, availability and interoperability are highly important. According to current information, the ECB wants to involve commercial banks and payment service providers (PSPs). They are to remain active as intermediaries between central banks and consumers. Tasks such as identification, onboarding and wallet provision need to be managed. However, if one takes a closer look, many open questions remain unanswered so far:
- How many payment wallets are consumers allowed to have?
- What provision methods will be available (mobile wallet, physical card, payment bracelets, etc.)?
- How can offline payments be made possible?
- Can the digital euro also be used to pay in e-commerce?
- What will be the maximum amounts for individual payments and the whole budget?
How these questions will be answered and how the digital euro will ultimately differ from cash or existing digital payments is something the ECB is expected to announce in two years' time. After a subsequent three-year development phase, the digital euro could be piloted in 2026.
We at PPI are following this topic with great enthusiasm and consider a clear demarcation between digital cash and digital payment methods in terms of usage for private individuals to be an essential element of the analysis phase. To keep you up to date on current developments, we will use this blog to regularly inform you about news on the digital euro in the coming year.
Philipp Schröder