The digital euro will arrive in 2027. This is what President Dela ECA, Christine Lagarde, announced on Friday even if the ECB had reported 2029 as a realistic date for the launch so far. “We have to move quickly, we cannot afford to waste time” said Lagarde explaining that the project does not aim to replace the cash, but to offer an alternative to existing digital payment platforms, such as credit cards, which are not European and often “involve massive commissions”.
The digital euro wants to be a new form of cash, but in an electronic version: a means of public payment, accessible to everyone, safe, free and usable throughout the euro area, both online and offline. He will not replace banknotes, but he will support them, with the aim of preserving the role of money issued by the central bank in a world that uses less and less physical cash. But what is the solution that citizens prefer? It is the question at the center of a SDA Bocconi research – presented to the ECB last spring and publicly discussed in a recent meeting in SDA Bocconi – which compared three possible scenarios for the introduction of European digital currency.
The goal of the digital euro
The project of the European Central Bank (ECB) was born in 2020 with an ambitious purpose: to defend European monetary sovereignty in a context in which digital payments are increasingly dominated by private actors, almost always non -European. The digital euro, in this vision, would allow citizens to continue accessing directly to the money issued by the central bank, also in digital form, and to do so through reliable infrastructures, controlled by European public institutions by responding to the decline of cash and the growing diffusion of private coins (such as Stablecoin).
The model designed by the ECB
The model designed by the ECB is intermediated: citizens will not have an account directly at the ECB, but will use Wallets provided by banks and other Payment Service Providers (PSP) authorized. These subjects will manage onboarding, security, assistance, and will also offer additional services. The digital euro will be free for users, with basic features designed for shopping, payments between private individuals and transactions with the public administration. However, for reasons of financial stability, there will be limits to the decoming balance. Offline transactions will be possible, but subject to restrictions and not completely anonymous. All this has a goal: to create a public digital currency, but which does not destabilize the banking system, does not interfere with private credit and is compatible with the existing ecosystem. A solution – underlines the research – “prudent, institutional, technically solid”.
Alternative solutions
Most of the participants in the survey would use the digital euro, but two alternative solutions hypothesized by the research (Digital Cash and Euro Token, see below) have recorded a greater consent among European citizens, in terms of perceived utility, simplicity of use, trust and intention to adoption. The research shows that the current ECB model risks not being completely convincing for users. But it also offers a different direction, more ambitious and in tune with the needs of people.
Digital Cash
The second scenario hypothesizes a digital cash, emitted and managed entirely by the ECB, without going from private intermediaries. In this model, every citizen could open a public wallet at the ECB itself and use it to make peer-to-peer payments, in the store, online and offline, exactly as it happens today with physical cash. Digital Cash would have no limits to the detainable amount, would not require identification procedures for small amounts and would guarantee a high level of privacy, in particular for offline transactions. It is not programmable or integrated with the Crypto universe, but offers some conditional payment fees (e.g. deferred payments).
Euro token
The third scenario is the most radical and innovative: a digital token based on public blockchain, emitted by the ECB and natively integrated into the ecosystem of cryptocurrencies and decentralized finance (Defi). In this model, the digital euro takes on the form of peer-to-peer transferable cryptographic token, completely interoperable with other Crypto tools (e.g. Wallet, Smart Contracts, Exchange). The management of the infrastructure is distributed, with the ECB operating at the application level, while the transactions are validated by a network of public nodes and permixionless (as in the Bitcoin model). The token is programmable, for example to automatically make conditioned payments or intelligent contracts. It is also pseudonym, that is, traceable but not directly attributable to the identity of the user. Also in this case, there are no limits to the detainable amount, and transaction costs are close to zero.
Favorite models by EU citizens
Digital Cash and Euro token are preferred to the digital euro on all indicators: from simplicity to the intention of use, from confidence to compatibility with payment habits. The digital euro has the highest refusal rate: 24% of interviewees said it wouldn’t use it. The euro token gets the highest score as a solution for non-routine uses (e.g. peer-to-peer, integration with crypto services). Digital Cash is perceived as the most suitable solution to replacement of cash, for simplicity, free and public control. In all cases, the two most relevant factors for adoption are the perceived utility and compatibility with habits. The research results suggest that the success of the digital euro cannot be based only on technical solidity, but must be built around the value perceived for citizens. A digital euro too similar to existing tools risks being irrelevant. To impact, the digital euro must be simpler and more accessible, more public (less dependent on private actors), more integrated with the contemporary digital ecosystem. A question point concerns, however, the involvement of the banks, whose role, in the alternative scenarios to the digital euro, is reduced to that of providers of additional and premium services linked to digital currency.
