ECB board member Fabio Panetta said the digital euro is necessary as people are increasingly turning to digital currencies and there is a possibility that cash will one day die out.
Panetta, who is heading the ECB’s central bank digital currency project, said in an interview with Les Echos that under such a scenario, it would be imperative that people continue to use a currency that is backed and issued by a central bank.
Panetta said:
“We cannot run the risk that central bank money is no longer used. That’s why we need a digital euro.”
He clarified that the digital euro is not meant to supplant traditional cash banknotes and the ECB will continue to issue them as long as there is a demand for them.
Panetta added that the ECB is continuously improving its banknotes to ensure they cannot be counterfeited and will launch a new series soon with updated technology.
Panetta also said the ECB would ensure no adverse impact on the banking system.
Digital Euro in 3-4 years
Panetta told Les Echos that the digital euro project would likely launch in three to four years if all stages of the process go smoothly.
He said there are currently 50 people working on developing the digital euro and assessing its impact on the financial system. Meanwhile, the European Commission is readying legislation to create a regulatory framework for the CBDC.
The EC is slated to present the legislative proposal in June. Once that is in place, the Governing Council will deliberate on whether to launch a preparation and testing phase in October.
Panetta said the testing phase would likely take two to three years, which puts a launch window for the digital euro at roughly three to four years if all member states agree to do so.
Big brother concerns unwarranted
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 allow governments to impose limitations on spending.
Panetta responded to the concerns and said:
“The European Central Bank will 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 said that despite the privacy concerns around data and identity, they are necessary to combat illegal financial activities. However, there needs to be a balance between preserving confidentiality and fighting illicit financial activity.
He added:
“This balance will be determined by the legislator. In current discussions, some want to prioritize confidentiality, while others want to prioritize the fight against illegal activities.”
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