Cash is on its way out. Consumers prefer cards and mobile payment apps – and not just online any more but in the physical world as well. Since the outbreak of Covid-19 last year, even German bakeries accept digital payments. So, what does the digital euro have that other digital payment methods don’t? What’s the upside?
Well, to answer that we need to get technical for a minute. When you pay cashless using current options, the payment is made digitally but the money is being funnelled from your bank account via one or more payment service providers (credit card companies, Paypal, etc.) to the retailer’s bank account.
With the digital euro, there is no need for such intermediaries any more. The digital euro would be issued by the central bank, just like cash. The central bank could offer consumers a digital wallet they can access directly, for example without banks or payment service providers acting as intermediaries.
The digital euro would be nothing like cryptocurrencies such as Bitcoin, by the way: It would be issued and controlled by the European Central Bank (ECB) and any digital euro amount could be converted into conventional euros at any time – without any exchange rate or default risks.
And what does the insurance sector think about the project? A digital euro wouldn’t only be advantageous to consumers, it could also contribute nicely to bolstering the euro’s significance on an international level and make the eurozone more competitive.
When it comes down to the nitty gritty of designing the digital euro, there are a few things to consider, however. We have summarised the most important points in a position paper. What is of the utmost important – not only for the insurance sector – is safeguarding financial stability. The digital euro can only succeed if there is a reliable legal framework and a secure and resilient technical infrastructure.
We also share the ECB’s view that a digital euro should be designed exclusively as a means of payment, i.e., it should not be intended for extending loans or storing large amounts of money. It would, however, be sensible that, as a means of payment, the digital euro be available to both consumers and companies.
The goal must be to create a rapid, secure and cost-effective payment system that is available to everyone. We will support this process as best we can. For the digital euro is a necessary next step in the Euro’s evolution.