According to Bundesbank President Jens Weidmann, central banks should beware of crowding out private payment solutions for consumers and should play a supportive role instead. Mr Weidmann pointed out that competition and regulation are essential for a good market outcome. Speaking at a virtual Bundesbank conference on the future of payments in Europe, he said that central banks should act as catalysts by providing the backbone of the payment system.

In his view, consumers should be able to choose from a broad spectrum of payment methods “that fit their preferences for safety, convenience, speed, cost efficiency and privacy”. In a market economy, it is first and foremost up to the private sector to develop and provide innovative payment solutions, said Weidmann, noting that real-time payments, for instance, should become the “new normal”. Central banks needed to provide trusted platforms for such solutions, he explained, and needed to be at the cutting edge of technology in order to do so. This, he pointed out, also includes working on central bank digital currency (CBDC). One option may be to supply CBDC to commercial banks using new technology.

Difficult trade-off for central banks

In his speech, Mr Weidmann particularly addressed the opportunities and risks of offering CBDC to the general public – an issue which is currently under discussion in the Eurosystem. He said that it would first be necessary to clarify what purpose the new form of money is supposed to serve in order to tailor it accordingly. If it were to be introduced, he reasoned, care would have to be taken to ensure that other central bank objectives such as price stability and financial stability were not compromised. He stressed that the aim of such a digital euro would only be to complement and not to replace cash, acknowledging that many people value cash because it ensures privacy, amongst other things. CBDC, noted Mr Weidmann, probably could not be designed with such a high degree of anonymity. He explained that central banks face a difficult trade-off when designing CBDC. “On the one hand, it has to be attractive enough for consumers so that they accept it and can reap its benefits. On the other hand, if CBDC were too attractive, it could disrupt the existing financial system.”

Introduction of a digital euro would take time

According to Mr Weidmann, the Eurosystem has not yet decided whether to introduce a digital euro or not, and before such a decision is taken, the impact of this kind of digital currency needs to be thoroughly investigated and weighed up. “And even if we were to opt for CBDC, its careful introduction would be an immense logistical and technical endeavour and, therefore, would be bound to take time,” he added.

ECB Executive Board member Fabio Panetta, speaking at the virtual conference, also stressed the need for caution when designing a digital euro. In his view, a digital euro would combine the efficiency of a digital payment instrument with the safety of central bank money. “Together, these two types of money would be available to all, offering greater choice and access to simple, costless ways of paying,” Panetta said.

Market in Europe highly fragmented

In his speech, Federal Finance Minister Olaf Scholz called for the relevant decisions regarding Europe’s payment system to be taken swiftly, noting that there was strong demand for digital payment options that needed to be met. “We should not just wait and see,” he said, which is why he supports the ECB’s work on a digital euro. Mr Scholz also described the European Payments Initiative (EPI), a joint initiative by several private banks in the euro area, as promising. It aims to create a unified European payment solution encompassing a payment card and a digital wallet that can be used to cover in-store, online and person-to-person payments as well as cash withdrawals.

Mr Scholz criticised the payments market in Europe for currently being too fragmented. With regard to cross-border payments outside of the euro area in particular, he said that Europe needed to become more competitive and must not relinquish the market to US competitors. By contrast, he rejected unregulated, privately issued digital currencies, which he said were “not an option” and did not have his support.

Common European answers necessary

The lack of competitiveness amongst European market participants was also criticised by Bundesbank Executive Board member Burkhard Balz, whose remit at the Bundesbank includes cashless payments. “None of the many payment applications available in Europe are big enough in terms of reach and user numbers to compete on an equal footing with global players like large card networks or bigtech firms from China and the US,” said Mr Balz, noting that comprehensive European answers to the challenge posed by digitalisation were needed. “As soon as possible, users should be able to send and receive payments throughout Europe in a convenient and cost-efficient, safe and secure way,” said Mr Balz. He pointed out that a new mindset and high speed were needed amongst all the market players involved to achieve this goal, stating that “2021 will be a decisive year for the future of European payments”.