‘What’s the point?’ — EU lawmakers sink teeth into digital euro

The European Central Bank is currently mulling whether to issue euros in digital form, alongside the more familiar banknotes and coins — and, if you’ve wondered what the point of that is, you’re not the only one.

A hearing at the European Parliament on Tuesday (27 November) left many EU lawmakers also scratching their heads, with some calling for the plans to be rejected outright.

The EU isn’t the only jurisdiction considering issuing a central bank digital currency, to coexist with traditional banknotes and coins — so are the likes of China, the UK and Sweden.

But EU lawmakers are now getting their teeth into legislation which will set rules in areas such as privacy, without which the digital euro can’t get off the ground.

Most Europeans are familiar with using digital payments — whether it’s using a credit card to make an online purchase, or transferring money to a friend using a banking app.

Technically, that’s not the real thing, lawmakers on the Economic and Monetary Affairs Committee were told today — as those payments are all intermediated by private bank accounts.

Banking crises

“Bank deposits are not money, they’re promises to pay money,” Miguel Fernández Ordóñez, a former Spanish finance minister and central bank governor, told the committee, arguing that currency should be issued by the state.

The digital euro “would end the problem of banking crises,” which “wouldn’t happen with a safe asset, the digital euro,” Fernández Ordóñez added — meaning the bulk of banking regulations, and the risk of taxpayer bailouts, could be removed too.

The ECB has spent years investigating a technology which it says will help it keep pace with a digital age — but for some, a digital euro would be a troubling state intervention in a market economy where banks and payment providers compete.

“A regulator-supervisor should not be a market participant,” said Ignazio Angeloni, a professor at the European University Institute in Florence. “It would be like if a referee was also a player … the digital euro would break this rule.”

If too successful, the digital euro project could give people a risk-free place to hold their money, policymakers worry— undermining the commercial deposits that enable banks to lend to the economy.

The ECB has attempted to steer around those concerns by limiting how many digital euros a person could hold and by saying that intermediaries such as banks would still play a role in onboarding clients or offering digital wallets.

But those workarounds just add to the confusion, some lawmakers believe.

“Do you think it makes sense for the consumer to have a digital euro at all,” if they have to have to set up multiple accounts to avoid breaching holding limits, socialist party lawmaker Joachim Schuster asked. “What’s the point of this for the consumer … do you think it would actually be used?”

“Fundamentally flawed”

Others say the idea should be killed outright, as — in the words of lawmaker Michiel Hoogeveen – it’s “fundamentally flawed.”

“It’s a compromise that nobody likes,” Hoogeveen, a Dutch member of the right-wing European Conservatives and Reformists grouping, told the committee. “We can reject it.”

Yet Stefan Berger — the centre-right German lawmaker charged with drafting the parliament’s position on the law — is undeterred.

“I want to create a situation where the European Parliament makes it obvious that we want a digital euro,” Berger told Euronews after the hearing — though acknowledged that the critical arguments expressed by his colleagues “need to be discussed.”

Berger wouldn’t be drawn on exact timelines, but said he could produce a report early next year, after dealing with higher-priority laws to safeguard the role of cash.

“We need a little time” to consider the digital euro, Berger said. “A fundamental question needs time.”