SZ: Mr Balz, what do you see when you picture the digital euro in your mind’s eye?

Burkhard Balz: I see a step forwards towards future-proofing our currency and, ultimately, also a clear signal for greater European autonomy.

But you do not see an object or anything equivalent to a banknote? 

If something is digital, you don’t see it as such. Look at how we deal with book money. We have euro on our accounts but all we see is an amount displayed in writing. However, we can go to a bank and convert book money into cash by withdrawing it from an ATM.

Why should the public switch from banknotes, which are tangible, to the digital euro?

As long as people wish for cash, they will also be able to pay cash and have access to cash as well. But every day we see how much more digitised our world is becoming. Innovation affects our monetary system as well. The project for a digital euro is our response as a central bank to this development.

Some people want to make payments anonymously, which only works with conventional cash. Digital euro payments will be registered.

We as central banks are in no way interested in these data. There is discussion, moreover, about the ability to effect digital euro transactions up to a certain amount so anonymously that only the sender and the recipient of a payment can see the transaction details, just as with cash. Amounts being considered range from €100 to €150 per transaction.

Prosecutors can perhaps look forward to the digital cash because they want those data to pursue criminals, or not?

As part of criminal proceedings, credit institutions and even a central bank can already be ordered to turn over data on transactions to the appropriate authorities. No exceptions are envisaged for the digital euro.

Does that mean that data on transactions using the digital euro, unlike conventional cash, can be de-anonymised?

Of course money laundering rules will also apply to the digital euro. One thing is clear: it is not in any central banker’s interest for the digital euro to create new problems.

But isn’t this project a sort of gift for the AfD and other radicals? There have already been demonstrations against the digital euro in Frankfurt. Why is the Bundesbank inflicting this on itself? 

Because we are convinced by the project. And we do not wish to abolish cash by any means. We are in the process of bringing out the third series of banknotes, which will be rolled out in 2029. We wouldn’t be doing this if there were any plans to abolish cash. We stand by cash, and we want to continue to move cash forward and offer freedom of choice. Wherever people wish to pay cash, that should be possible.

How much will the project cost?

The first estimate for the five contracts to be awarded externally was around €1.2 billion, distributed across the euro area and over at least ten years. However, that will only be part of the cost; there will also be costs for the infrastructure to settle payments using the digital euro, which we can’t yet put a number on.

So the project is also about creating a self-contained payment system. Why?

It’s about autonomy, resilience and efficiency. We should be less reliant on US providers such as PayPal and MasterCard in future. Of course the United States is a country that is well-disposed towards us, but Europe still faces the residual risk caused by data being kept in the United States. A decision on whether to switch off such a payment system as a last resort would be taken outside Europe. We should have no illusions about any of this.

MasterCard and Visa control the European payments market.

Yes, and I have nothing against those firms. They definitely do a good job, otherwise they would not be earning so much revenue. But in the end it is a question from a European perspective on how to ensure that we retain our own sovereign rights.

Has the issue become even more pressing following Trump’s election?

It was pressing even beforehand. I do not want to make a political assessment. But politicians take office with their own, sometimes completely different political viewpoint.

What role does China play in the issue of European autonomy in payments?

The Chinese are among the global leaders when it comes to the maturity of their own central bank digital currency. They could roll out the digital currency but are currently having issues with the financial stability of the system and economic developments.

How could China take over payments in Europe?

We saw an example of this during the 2024 European football championship here in Germany. In some fan zones – such as in Frankfurt – the only payment options were Alipay or cash. There are already many outlets catering for tourists that accept payments through Chinese payment service providers. Some grocery stores are already accepting these means of payment today as well. That could continue in the future. That is something for which we need to be prepared.

What does Europe need to do?

At bottom, we have to very clearly assert our positions and interests. Dealing with the USA and China will become tough. We will have to buckle up tight.

Why does Europe not have a PayPal of its own; why does the USA control the payments landscape?

Europe’s private sector banks, unfortunately, have not managed to get a joint effort of their own off the ground in the past 30 years. 

But now there are EPI and Wero. This new offering by the private banking sector for digital payments has got off to a good start, hasn’t it?

Yes, but there are yet other payment service operators active in southern Europe and Scandinavia. As a case in point, we do not have our own European payment system for e-commerce. There was no European response. The private sector has not delivered up to now, either, which is why central banks had to step into the breach, especially following the Libra wake-up call ...

... the Libra project was Facebook’s attempt to create its own currency in 2019, which was later aborted under political pressure ... 

... yes, and with over two billion potential users worldwide as well as the financial means to pull it off.   We realised that we as central banks had to work towards a digital currency ourselves because we could not rule out the possibility of other tech firms launching similar projects.

With Donald Trump as US president, private sector cryptocurrencies are celebrating new successes. Is that a concern for you?

If you look at the world of crypto assets, we are talking here of an asset class in its own right with highly volatile prices, i.e. high risks. As things stand today, the best-known crypto assets do not lend themselves to settling retail payments. This functionality is at the same time extraordinarily limited. The Bitcoin network currently settles around 500,000 transactions globally each day. In Germany alone, we average nearly 80 million cashless payments per day. I think that says it all.

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