In the final session of the evening in breakout room 2 for EBAday day one, ‘What is the outlook for CBDCs in Europe?’, a panel of experts discussed where CBDCs are heading in Europe and what possibilities could arise for banks, merchants, and consumers in the future.
Moderated by deputy editor of the The Banker, Liz Lumley, speakers included Alessandro Agnoletti, group head of digital currency and DLT at Nexi, Manuel Klein, product manager of blockchain solutions and digital currencies at Deutsche Bank, Emma Landrault, vice president of J.P. Morgan Onyx Coin Systems, Daniel McLean, digital euro and business model lead at European Central Bank, and Gilbert Verdian, founder and CEO of Quant.
When asked about trends emerging in the CBDC sector, Landrault commented that she sees trends in commercial bank tokens and tokenised deposits: “The asset tokenisation ecosystem is growing. We are seeing a growth in the conversation around tokenized deposits and commercial bank tokens, how we can design commercial bank money and central bank money on chain. For the last few years, we have had various iterations of different PoCs for wholesale CBDC, and only now are we seeing Swiss banking Association, German Banking Association, starting to publish consultations on commercial bank deposits. We are starting to see the whole commercial and central bank money come onto this digitised conversation.”
On the development of the digital euro, McLean stated that it is in progress and the Governing Council will soon move on to the next stage of the process and provide a digital framework for the digital euro. “A digital central bank currency is needed. We believe its future, and we believe the central bank needs in addition to the wholesale components, needs to also offer a digital alternative to cash for the future.”
On the benefits of retail CBDCs, McLean said that now is the time to act to provide options to the consumer. He boils the essence of retail CBDCs down to trust, in that users will have multiple options in payments, and the digital currency will be sources from an institution that they can trust.
Verdian described Europe as having a very mature financial system that is at the forefront of innovative global payment systems, therefore primed to lead in CBDCs.
“The ecosystem is ready for the next transformation, for the next generation of money. What we have seen with CBDCs is they are coming. It really comes down to putting logic and programmability at the core of money so that you can automate workflows and solve challenges of fraud in a new way, use innovation from the private sector to create new flows, new journeys, new experiences on retail and wholesale sides,” Verdian remarked. “This leads to a huge efficiency in the financial system and growth through innovation. It leads to better choice to consumers and businesses because they can automate a whole bunch of things that they couldn’t before.”
When polling the audience for how they would use retail CBDCs, the majority response was that they would use it for payment of services, with the second most popular choice being for cross-border payments. In the poll on how useful wholesale CBDCs are, the most common response was that it is not needed as other solutions such as RTGS exist, while equal parts of about 30% believe that it will ease cross-border payments issues and reduce costs.
Commenting on how the infringement on privacy and rights when it comes to data collected when using digital currencies,
Klein remarked that there are processes involved that can increase privacy involved when using digital tokens that are still in the research process. He described tokens that can be transferred digitally and are assigned to numerous public addresses, but the provider would not be able to know who held those tokens or how much they spent. He expands on the developments in an in-built privacy on backend infrastructure within the eurosytem where the European Central Bank (ECB) would not be able to know the details of users’ transactions:
“One of the advantages of this new technology is to have inbuilt privacy where the ECB cannot know exactly how much money I have for what I spent. Obviously, the intermediaries that provide these accounts are these wallets would have to do image checks and NFC checks. The legislator currently looks into whether this privacy can also be increased up to a certain threshold, especially with the digital bureau, so that you not only have higher privacy against the ECB, as the provider of the ledger, the backend ledger, but also against the intermediary that provides the wallet. I do think there is a possibility to create privacy in a digital central bank, digital currency system.”
On the topic of mass adoption of crypto and CBDCs in everyday life, for example using it to pay for your coffee in the morning, Agnoletti responded that crypto and CBDCs have different purposes:
“They are two different things. Crypto, from what I see today, is based on investment means, and so does not have the same purpose as CBDC. CBDC is expected to be stable by design, integrated into the payment systems by design, and always fungible with another form of central bank money. So I could not associate them together.”
The panelists explored how CBDCs are advancing and becoming more prevalent in the banking industry, however they are still in process of widespread adoption and being trusted by digital wallet users. While there is further research being conducted into CBDCs, there is still a long journey ahead for Europe to fully embrace both wholesale and retail CBDCs.