Circle recently submitted a public response to the European Commission’s request for information regarding the potential role and impact of a CBDC in Europe – or a “digital euro.” The European Commission’s consideration in integrating a digital currency for retail payments and the digital economy exemplifies how the global debate surrounding digital currencies has evolved and embraced new technologies.
Circle has been a long-time advocate for regulatory frameworks on how to issue, manage, and operate digital currencies – in the U.S. and beyond. With the launch of Euro Coin, we hope to see discussions around these potential frameworks continue and take shape to support responsible innovation.
Circle’s comments address:
How private-sector, open blockchain-based payment innovations can support many of the benefits that a digital euro can provide.
How the creation of a digital euro would incur significant costs to the European Central Bank, European Member States, businesses and end-users alike.
How a digital euro could take many years to create, disintermediate the European Central Bank’s monetary policy, and pose cybersecurity risks.
How a digital euro could raise concern surrounding critical financial crime compliance and privacy.
Key Points and Excerpts:
Private sector innovations are meeting the benefits that can come from a digital euro
“Many of the benefits of a digital euro are already being met by private-sector innovations, such as privately-issued digital money that run via blockchain-based payment systems, as well as electronic and mobile money innovations… This private sector-driven economic activity using blockchain-based payment system innovations offers an alternative pathway to centralised challenges from China and other countries proceeding with central bank digital currency (“CBDC”) versions of their currencies.”
“Privately-issued, euro-denominated stablecoins should be seen as a reflection of the strong demand for the euro globally, and Circle believes that regulatory clarity for these digital assets will help strengthen the EU's efforts to cement and continue to expand the euro’s internationalization.”
A digital euro won’t guarantee an increase in financial inclusion
“A digital euro issued under an account-based model could simply replicate the current challenges for financial inclusion. For instance, many Europeans lack access to traditional banking services because they cannot meet minimum balance requirements. This poses questions about whether the European Central Bank (“ECB”) would require financial institutions to waive minimum balance fees if an individual were to hold digital euros. In light of recent challenges to the financial system, the EC and ECB should take steps to create a regulatory framework for digital assets that builds trust in financial products and services that can lower costs and increase financial inclusion for end-users.”
A digital euro could disrupt how monetary policy is conveyed in the European Union
“Monetary policy is conveyed through the two-tiered banking system. This is and should remain a public sector activity under the independent oversight of central bankers. The advent of CBDCs could diminish the transmission of monetary policy through potentially corrosive pressure on bank deposits and increasing consumer distrust in which forms of money are presumed to be the safest.”
A digital euro could pose significant costs to stakeholders at multiple levels in the EU
“The steps to design, introduce, and widely adopt a digital euro would likely incur significant costs to the ECB and to European Member States, as well as to merchants… These costs could range from creation of novel back-end settlement processes to customer-facing point-of-sale (POS) systems, and they could affect millions of businesses and end-users transacting with a digital euro. Additionally, financial institutions such as banks, credit providers, lenders and others could bear associated costs with absorbing a digital euro, and integrating such a novel arrangement within their existing systems - including determining how to offer new products and services denominated in a digital euro.”
A digital euro has the potential to create privacy concerns for users
“The presumption of privacy and the universally free and lawful use of money is an important principle and human right, and one closely protected in Europe. CBDCs and centralised payment system innovations, particularly those that are government-led, pose serious potential breaches of this public trust… While digital assets in the past have been erroneously analogous with anonymity and illicit activity, the industry is today enabling standards that preserve an individual’s right to privacy while allowing for the prevention and detection of illicit financial flows. This duality is critical for digital assets to be part of the domestic and international financial systems.”