Digital euro: Central bank money must be reinvented

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Money has practically been synonymous with cash since ancient Greece: Coins and the later banknotes offer people a well-functioning and widely recognized means of payment for their everyday business.

In recent years, however, the digital revolution has led to a major change in people's payment habits: more and more often, we simply hold up a card to pay, swipe our smartphone or use a smartwatch.

A new study on the Payment Attitudes of Consumers in the Euro Area (SPACE) carried out by the European Central Bank and the national central banks has shown: Almost half of the adults in the Euro Nowadays, space prefers to pay digitally.

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And this trend has apparently intensified in the course of the coronavirus pandemic.

While cash is the most common form of physical purchase, the share of this payment method is declining.

Card and electronic payments are the preferred solution for mail order purchases.

And when paying bills, direct debit and transfers are predominantly used.

These conflicting findings suggest that none of the payment methods currently available meet all consumer needs.

This shows the importance of continuing to give people choice when paying without disappointing their expectations that secure, affordable, and easy-to-use payment methods are available.

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In fact, cash and digital money can complement each other: Their coexistence offers a greater choice and easier access to simple payment options for all social groups and thus ensures a high degree of inclusion and crisis security in payment transactions.

Digital money goes hand in hand with the digitization of the economy: It promotes the growth of e-commerce and a connected lifestyle.

It also meets people's desire for immediacy and seamless integration between payments and digital services.

But even if digital payments are designed to be as robust as possible, they remain susceptible to disruptions such as power outages, cyber threats or technical disruptions.

In such situations, cash can increase the resilience of payment transactions: Thanks to its unique properties, it is an important form of security and a reliable store of value. Our payment study shows that 34 percent of the citizens of the euro area keep an additional cash reserve at home as a precaution.

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Cash also has an inclusive effect.

One particular concern about digital payments is that if they become the norm, people who cannot or do not want to use these services - for example to protect their privacy - run the risk of being excluded from economic life.

Our payments study shows that cash is used regularly by people of all ages, levels of education and income.

In addition, cash is crucial to ensure the inclusion of socially vulnerable populations who may not have bank accounts or the necessary digital skills.

This underscores the need to maintain the smooth functioning of the cash cycle, including easy access to cash and widespread acceptance of cash at points of sale.

We are therefore still determined to ensure that cash will continue to be widely available and accepted throughout the euro area.

Digital counterpart to banknotes required

As consumers and private funds become increasingly digital, central bank money must also be reinvented so that it remains fully available as a public good in the digital age.

We should therefore be prepared to introduce a digital equivalent of banknotes should this become necessary.

A digital euro would complement cash and, together with it, offer access to simple, free payment options.

In its design, care would also be taken to ensure that it is compatible with private payment solutions.

This would facilitate the provision of pan-European solutions and additional services to customers.

Protecting privacy will be a high priority so that the digital euro can help maintain trust in payments in the digital age.

To better understand the needs and concerns of end-users, we are asking for feedback as part of our ongoing public consultation on a digital euro.

Digitization has the potential to revolutionize payment transactions.

Still, it is important that European households and businesses continue to have a choice.

We are therefore committed to ensuring that a public, simple, free and secure payment method is still available in all circumstances.

Fabio Panetta, 61, has been a member of the Executive Board of the European Central Bank since January 2020.

The former vice-governor of the Banca d'Italia is responsible for international and European relations as well as banknotes, market infrastructure and payment systems.