Fabio Panetta, a board member of the European Central Bank (ECB), has emphasized the importance of a digital euro to ensure that central bank money continues to be used as people increasingly turn to digital currencies. In an interview with Les Echos, Panetta, who is leading the ECB’s central bank digital currency (CBDC) project, said a digital euro would be imperative should cash one day die out.
Digital Euro to Co-Exist with Traditional Cash Banknotes
Panetta clarified that the digital euro is not intended to replace traditional cash banknotes, and the ECB will continue to issue them as long as there is demand. He added that the ECB is continuously improving its banknotes to prevent counterfeiting and will soon launch a new series with updated technology. The ECB will also ensure no adverse impact on the banking system.
Timeline for Digital Euro Launch
Panetta revealed that the digital euro project would likely launch in three to four years if all stages of the process go smoothly. Currently, there are 50 people working on developing the digital euro and assessing its impact on the financial system. The European Commission is also preparing legislation to create a regulatory framework for the CBDC, which is slated to be presented in June. Once the legislative proposal is in place, the ECB Governing Council will deliberate on whether to launch a preparation and testing phase in October. The testing phase is expected to take two to three years, which puts the launch window for the digital euro at roughly three to four years if all member states agree to do so.
Privacy Concerns Addressed
Many in the industry are concerned that CBDCs, and specifically the digital euro, will allow central banks to violate the financial privacy of citizens and enable governments to impose limitations on spending. Panetta responded to these concerns, saying that the ECB would not have access to personal data. He added that personal data and information would only be provided to financial intermediaries who have no obligation to share it with regulators. Panetta acknowledged that while privacy concerns around data and identity are necessary to combat illegal financial activities, there needs to be a balance between preserving confidentiality and fighting illicit financial activity. The balance will be determined by the legislator, with some prioritizing confidentiality and others prioritizing the fight against illegal activities.
The ECB is taking steps towards the launch of a digital euro to ensure the continued use of central bank money in a world where digital currencies are becoming increasingly popular. The digital euro will co-exist with traditional cash banknotes, and the ECB will ensure no adverse impact on the banking system. Despite privacy concerns, Panetta assured that personal data would not be accessible to the ECB and would only be provided to financial intermediaries. The timeline for the launch of the digital euro is expected to be roughly three to four years if all member states agree to do so.