CBDC DEBATE Figure 1: Why the ECB wants to introduce a digital euro Pre-empting
uptake of foreign currencies
Complementing cash and deposits
flow: Alexander, to ensure that we all have a common understanding: What are central bank digital currencies? Alexander Bechtel: In general, we differentiate two different forms of money: central bank money and commercial bank money. In today’s financial system, the former is available to end users only in the form of cash. Retail CBDCs would be an opportunity for the public to access central bank money in a digital form. This is what the ECB is planning with the digital euro and what China is doing with the e-CNY. However, there is a second version of a CBDC which is called ‘wholesale CBDC’. Here, the use remains limited to the regulated banking sector – which translates into use cases that would mostly be limited to capital markets.
flow: And what’s the difference between an account-based and a token-based CBDC? Alexander Bechtel: This differentiation is relevant for retail CBDCs. Put simply, if a digital currency is token-based, the user can settle a payment without any intermediary. You could compare this with physical cash, where the payment is completed once the money is handed over. With account-based CBDCs, an intermediary has to verify the account holder’s identity.
flow: Britta, on a different occasion you revealed that you wished for CBDCs to become reality soon. Why is this the case and what form of CBDC were you thinking about? Britta Döttger: With over 90% of central banks investigating CBDCs, the introduction feels tangible, and China is front running. What’s the purpose of a central bank? Ultimately, it is ensuring the wellbeing of the society – be it by controlling inflation, ensuring financial stability, and thereby supporting the economy. For me, the latter also encompasses facilitating digital business models. As Roche and other companies are increasingly transforming product and financial business activities to deliver greater value, existing payment systems no longer meet our needs. We still need several intermediaries to conduct a cross-border payment, which makes the process slow, costly, and fraud-prone. If central banks were
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Avoiding risks of unregulated
payment solutions
Creating synergies with payment industry
Ensuring access to central bank money
Supporting
digitisation in the European economy
Source: ECB
to introduce token-based CBDCs, this could change. Central banks should play a key role in reshaping the future of money.
flow: Jochen, you are a member of the Digital Euro Market Advisory Group of the ECB. Is a rethink taking place at the ECB? Jochen Siegert: The ECB has definitely understood the need to evaluate and most likely introduce a digital euro. In our advisory meetings, central bankers ask a lot of questions. Based on this information, they will decide on the design of the digital euro. Right now, we know that the ECB is thinking about making the digital euro available for retail payments. The ECB is very clear that the digital euro must deliver a perceptible benefit to the consumer compared to the status quo. Britta Döttger: I am a bit worried to hear that B2B payments currently don’t play a role for the ECB. To enable digital business models, improve speed, enhance security, lower costs, and improve cross-border payments, we need a vision for B2B payments as well. For Europe, introducing a smart, digital euro could be a great foundation of innovation
The ECB is very clear that the digital euro must deliver a perceptible benefit to the consumer compared to the status quo
Jochen Siegert, Head of Asset Platforms at Deutsche Bank, Member of the Digital Euro Market Advisory Group of the European Central Bank (ECB)
while safeguarding European sovereignty and reducing the dominance of foreign payment service providers. Jochen Siegert: To clarify, the ECB has not ruled out opening the digital euro for B2B payments. However, it is thinking in phases and will start with retail payments.
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