The European Central Bank wants to concretise its plans for a digital euro.

ECB board member Fabio Panetta warned on Thursday against excessive expectations.

“It will not be possible for the digital euro to meet all expectations in every respect from day one.

I would like to emphasize that very clearly, ”said the Italian to a committee of the European Parliament.

The European Central Bank (ECB) wants to determine the core properties of a digital euro in a two-year study phase.

According to Panetta, it is important to create digital money that is immediately useful on the one hand, but can also be further developed "within a reasonable time frame" on the other.

Christian Siedenbiedel

Editor in business.

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A high-ranking task force on digital central bank money is working on identifying use cases and design options for a digital euro.

After this phase, technological solutions would be examined, said Panetta: "We assume that we will narrow down the design-relevant decisions by early 2023 and create a prototype in the following months," he added.

Weidmann had been cautiously critical

Last week, Bundesbank President Jens Weidmann was cautiously critical of the digital euro. You don't have to introduce it with all its functions right away. You have to see the opportunities, but also the risks. It might make sense to proceed step-by-step, initially equipping the digital euro with certain properties that allow important possible uses, and later other functions could be added. In surveys by the Bundesbank, more and more people said they could imagine using a digital euro. But in the spring it was still only about 40 percent.

The crux of the matter is anonymity, said Weidmann: “One thing is clear: the digital euro will not be able to offer the anonymity of cash.” After all, digital payments always leave traces. "In addition, authorities must be able to trace transactions within the framework of legal requirements so that they can counteract and punish illegal activities such as money laundering."

In July, the ECB decided to dig deeper into the project of a digital euro.

Many details are still unclear or at least not yet finally decided.

The preparations are now to begin in a two-year investigation phase, followed by a three-year implementation phase.

The digital euro could thus be introduced in around five years.

On the one hand, the central bank wants to react to plans by other countries such as China, which in turn want to introduce digital currencies, but on the other hand it does not want to leave the field to private digital currencies such as Bitcoin or Facebook's Diem.

Many details have not yet been clarified

Citizens are expected to receive digital wallets or apps called “wallets” from the banks, on which they can store digital euros. The central bank has not yet decided on the details. There are several technical possibilities, emphasized ECB board member Fabio Panetta and Ulrich Bindseil, Director General for Market Infrastructure and Payment Transactions, at a press conference at the time. However, the ECB probably tends not to use a blockchain, as is used in the case of Bitcoin. For example, the existing real-time transfer system TIPS from Italy could provide the technical basis. The pace of payments would be high. Economists had warned, however, that the demands on the new digital currency should not be lowered so much that it would become “just a second PayPal”.

The advantage for consumers should be that they get “digital central bank money” which, like cash, is a direct claim against the central bank. If the house bank goes bankrupt, the digital euro would be safe. So that not all people withdraw their money from the bank and exchange it for digital euros, especially in countries with weak banking systems, there should be upper limits on how many digital euros everyone can keep in their wallet. In a working paper by ECB expert Bindseil, there was a possible upper limit of 3000 euros. If the amounts on the wallets exceed this limit, the money should flow into a bank account. In addition, small payments on the Internet with the digital euro should be cheaper than before.

Initially, the digital euro was not without controversy in the Governing Council. The French in particular were worried that a digital currency from American companies such as Facebook could disempower Europe's monetary institutions. They wanted to counter this with a European central bank response today rather than tomorrow. Bundesbank President Jens Weidmann, on the other hand, warned that on this issue, security comes before speed. He also brought the regulatory thought into play that the central bank should not nip private initiatives in the field of digital payments in the bud. In addition, the impact on the banking system would have to be carefully examined.

The digital euro is also controversial among citizens and financial experts in the banks.

In a survey by the ECB, in which 8,000 citizens took part, 47 percent of them from Germany, the issue of anonymity was particularly addressed: People were worried that the digital euro could be used to track all money movements officially.

The ECB assures that cash should not be abolished.

“In any case, the digital euro should complement, not replace, cash,” Panetta emphasized several times.

But the central bank cannot, of course, rule out possible repressions in day-to-day business.