Cryptocurrencies ECB Digital Euro

Cryptocur­rencies — When and how will the Digital Euro emerge?

The European Central Bank’s (ECB) public consul­tation on the Digital Euro concluded on January 12, 2021. Based on the state­ments received, a funda­mental decision on the contin­u­ation of this major project is expected in the summer of 2021. In this context, the devel­op­ments of the private sector cryptocur­rencies Bitcoin and Diem (formerly Libra) are also considered. Other central banks’ activ­ities, e.g. in Sweden regarding the “E‑Krona” as well as in China, will certainly have an impact in this regard as well.

Statement of the German Banking Industry Committee

In its statement on the Digital Euro, the German Banking Industry Committee expressed its support for the ECB’s activ­ities and pledged its assis­tance with the design and project planning.

“For the German Banking Industry Committee, the intro­duction of a Digital Euro by the Eurosystem has the potential to strengthen Europe’s compet­i­tiveness, depending on how it is designed. However, it also carries the risk of funda­men­tally changing the geometry of the European banking system. Banks in Germany and Europe play a key role in the economic cycle and make an indis­pensable contri­bution to the efficient supply of financial resources to companies and consumers. That alone is why it is important to involve the banking industry in the consid­er­a­tions of a digital currency at an early stage.”

Karl-Peter Schackmann-Fallis, Executive Member of the Board of the German Savings Banks Association.

Predom­i­nantly positive tenor

The tenor of the German Banking Industry Committee statement is mostly positive. The Digital Euro is considered to be a pioneering payment method in a digital economy, which coher­ently comple­ments the existing and proven systems and struc­tures. The aim should be to achieve the greatest possible synergies with existing payment trans­action solutions in order to ensure access to digital central bank money for end consumers. There is consensus that digiti­zation is changing payment trans­ac­tions and that the ECB needs to carefully design the Digital Euro to ensure financial stability. To implement the targeted activ­ities, high invest­ments are inevitable for both insti­tu­tions and the economy. But the use of modern tokenization solutions, e.g. through Distributed Ledger Technology (DLT), enables the imple­men­tation of innov­ative payment solutions. In this context, the use of smart contracts and micro­pay­ments, services such as “Blockchain as a Service”, “Smart Contracts as a Service” or payment offers in the Internet-of-Things (IoT) are conceivable.

Need for clarification

It is considered critical that the proven two-tier banking system with central bank and commercial banks could be called into question. According to the German Banking Industry Committee, this constel­lation is essential for money market stability, the supply of loans to companies and private individuals, and the accep­tance of and trust in the payment methods issued. The estab­lished banking system is seen as a crucial component for ongoing economic growth.

Another open question is to what extent a Digital Euro is to be regarded as a crypto-asset in the sense of MiCA (Proposal for a regulation on Markets in Crypto-assets) and what impli­ca­tions this might have. The German Banking Industry Committee has also issued a statement on the ECB’s proposed regulation.

There is a need for further clari­fi­cation with regard to some regulatory issues. In this context, the German Banking Industry Committee proposes an orien­tation towards existing standards. All parties involved should at least comply with the require­ments of

From the German Banking Industry Committee‘s point of view, legal certainty, uniform speci­fi­ca­tions for a token-based fiat money and an appro­priate regulatory standard are the basic prereq­ui­sites for consumer accep­tance and trust in the Digital Euro.

Courses of action for payment institutions

The discussion on the Digital Euro has to be seen in the context of the general increase in the impor­tance of cryptocur­rencies. Many companies have long since recog­nized that Distributed Ledger Technology can help to efficiently digitize complex supply relation­ships. It is therefore a logical conse­quence that there is also growing interest in using this new technology to process payments as well. In the future, it will certainly not only be central bank-issued cryptocur­rencies that will be used. For payment insti­tu­tions, the generally growing interest in cryptocur­rencies increas­ingly results in the need to offer their own customers storage of and trading in cryptocur­rencies. In addition, oppor­tu­nities may also arise for insti­tu­tions that offer their corporate customers self-issued cryptocur­rencies to support them in the digital­ization of their business processes.

The SRC experts will keep an eye on the exciting devel­op­ments in the field of cryptocur­rency and the Digital Euro for you and support you in the realization of your crypto storage service. We will gladly inform you about the options to get involved in this innov­ative sector.