Money and payments
4.1 A step towards a digital euro in 2021
The Governing Council of the ECB launched in 2021 an extensive investigation project, the objective of which is to establish a concrete form for a digital euro. The project is a significant step towards a future where citizens have access to both cash and a digital form of the euro.
The proposed central bank digital currency for the euro area is referred to as the digital euro. The colloquial expression ‘digital cash’ can also be used as the digital euro would be issued by the central bank. A central bank digital currency could improve the operational reliability of the economy, as in contrast to the other electronic payment instruments, it would not be dependent on the systems of companies located outside the euro area.
The Eurosystem gets organised to promote a digital euro
A central bank digital currency has become one of the important themes in the work of central bankers around the world.
The Eurosystem started its own investigative work on a central bank digital currency in early 2020 by establishing a Eurosystem High-Level Task Force on Central Bank Digital Currency. The Bank of Finland’s representative in this Task Force is Member of the Board Tuomas Välimäki.
According to the Task Force, a digital euro would be a payment instrument that is offered to the public and replicates some of the features of cash. It would not be so much a system provided to banks or institutions, as for them a central bank digital currency is already an everyday reality in the form of TARGET payment services.
In 2021, the Eurosystem took the next step as the ECB Governing Council took a decision to launch a two-year investigation project (in Finnish).
This project is significantly larger than the preceding preparatory work, as dozens of experts from both the ECB and all the Eurosystem central banks participate in the project.
The most important decision-making body in the project is the High-Level Task Force, where the Bank of Finland continues to be represented by Tuomas Välimäki.
Many open questions on a digital euro
A central bank digital currency can be implemented in a number of ways (in Finnish). It could be in the form of a deposit account that would function largely in the same manner as current commercial bank accounts. On the other hand, it could be, for example, a simpler mobile wallet application that provides only basic payment services.
Depending on the method of implementation, the impact of a digital euro on the economy and financial stability could vary considerably.
The purpose of the investigation project is to determine how to achieve the largest possible benefits and the smallest possible risks for a digital euro.
The project has several sub-working groups and interim phases in which the various experts look for answers to the open questions. This is not solely an ECB project as it involves experts from all the euro area central banks.
The project also draws on know-how by external stakeholders, particularly via an industry advisory group and by launching public consultations and consumer surveys.
A digital euro could complement the payment possibilities
One of the most important objectives of a digital euro is to complement the range of future payment instruments.
As a result, a means of payment provided by the central bank would be available also in an increasingly digital economy and in an economy where the traditional use of cash is less dominant.
The purpose of a digital euro is neither to compete with the services provided by banks and payment institutions, nor to fully replace cash.
In most euro area countries, citizens are already largely accustomed to using electronic payment instruments in daily payments. Many of these payment instruments are, however, dependent on the systems of companies located outside the euro area.
The development of new payment systems for the euro area will improve the operational reliability of the economy under all circumstances. In addition, it will enhance the development and maintenance of payment flows, under the terms of euro area citizens.
The Eurosystem project defines the digital euro but does not take a decision on issuance
A decision on the issuance of a digital euro has not yet been made, and a possible decision will not be taken before the completion of the project that was launched in 2021.
The objective of the investigation project is to ensure that the Eurosystem will be prepared to issue a digital euro if it is considered justified some day in the future. In that case, the Eurosystem would already have a plan in place.
In practice, a digital euro could become available to citizens towards the end of the current decade, at the earliest. The Eurosystem may also conclude that a digital euro is not necessary for a long time yet.
Payments must be possible under all circumstances. With the digital euro project, the Eurosystem wants to ensure that people always have access to secure payment solutions and payment systems that enable the functioning of everyday life under all future scenarios.