The Journey to a Digital Euro- Remarks by Anne Marie McKiernan, Director of Financial Operations at the IBEC Digital Euro Roundtable Event

Good morning. It is a pleasure to be here today to talk about the digital euro. My sincere thanks to IBEC and particularly the Financial Services Ireland (FSI) for organising and hosting this event (Elena, David and team). I am delighted to be joined by Eric Tak, Head of Digital Euro Product Proposition at the ECB. It is a privilege to have Eric here with me to present today. 

Thanks also to those of you in attendance. We are delighted to have the opportunity to talk to you about the European Central Bank’s (ECB) initiative to explore the possible introduction of its own Central Bank Digital Currency (CBDC), the ‘digital euro’.

New technologies in retail payments and changes in our payment habits have fuelled a decline in the use of cash. In response, central banks are committed to retaining cash as a universally accepted means of payment, as well as investigating the role of CBDC’s in strengthening the role of public money. CBDCs are proactive measures – being considered all around the world - to ensure that our currency remains fit for the digital age. 

The digital euro would be a digital representation of central bank money that can be used for digital retail payments by the general public, business and governments, in the entire euro area.

It will be a complement to cash and another universal means of payment in the euro area, with legal tender status. The digital euro would offer an additional means of payments, adding resilience and choice, value and service for consumers, merchants and businesses in the payments system. The digital euro design features enhanced privacy; leading edge anti-fraud and cyber resilience, and a better user experience which is faster, easier and cheaper. Therefore, the journey towards a digital euro would aid in Irelands catch up in the retail payment space.

A digital euro will offer an additional means of payment in our increasingly digitalised economies. It will be free to individuals for basic payment services – the Eurosystem will bear the costs of production; it will offer ‘offline function’ for digital proximity payments, even without an internet/ network connection; it will promote financial inclusion, by giving a digital means of payments even without a bank account; and users will be able to open a digital euro account with their current payment service provider (e.g. bank) and seamlessly move to another provider should they wish.

Equally, merchants must see the value proposition. A lack of a pan-European payment solution can be a barrier to trade for merchants/ businesses. Digital euro will offer a universal accepted solution for the euro area and could result in higher conversion rates for merchants and provide them with the ability to receive payments instantly.

Merchants often experience opaque fees structures when it comes to existing payment processes. With the digital euro, safeguards in the form of a merchant service charge cap is envisioned to ensure exorbitant fees are not charged. Digital euro should put them in a stronger position to negotiate fees with other payment service providers and thus reduce their own costs. 

A key advantage of a Digital form of central bank money is the ability to spur further innovation in payment services – for businesses and individuals.  

CBDCs are characterised by public-private cooperation. The Eurosystem will provide this new form of money and operate the payments and settlement systems for it – and bear those costs.  The proposed design is for the Eurosystem to provide a digital euro app, to payment service providers. Those Supervised intermediaries will distribute the digital euro – by integrating it into their existing apps and wallets, offering potential for enhanced services and opportunities for customers. Under the Eurosystem proposal, they will be compensated for basic services, as is the case for other electronic payment instruments today.  This combined public-private approach is to harness greater benefits of resilience and innovation in payments. 

Alongside the opportunities, it is important to emphasise the challenges – and more importantly how they are being considered. Digital euro poses some technical challenges [e.g. offline functionality is a relatively new concept and will need further exploration, and opening up of private secure elements on hardware devices to facilitate digital euro wallet functionality], privacy concerns, financial system and regulatory implications that are the subject of thorough analysis and consultation. The European Central Bank, in conjunction with the Eurosystem National Central Banks, is committed to transparency and dialogue throughout this process, engaging with citizens, financial institutions, and policymakers to shape a digital euro that reflects our collective values and needs. As part of this process, the ECB is working closely with National Central Banks and industry on finalising the rulebook , taking part in deep dives into technical aspects like offline functionality and learning through experimentation to better understand user requirements. We, therefore, embrace the opportunities that a digital euro will bring, while remaining mindful of some of the challenges.

The payments landscape has evolved significantly over the past decade, and this pace of change is accelerating. However, Ireland lags behind.

We no longer have an Irish card payment scheme (Laser scheme ceased to operate in 2014) and we rely heavily on international card schemes to make card payments. While cash is, and will remain, an option to pay, the popularity of digital payment instruments is high and rising (digital payments have doubled since 2015 – cash withdrawals from ATMs have fallen by 40%). 

While payments have evolved and advanced, frictions in the payment chain are still evident (such as settlement delays and high processing fees). A digital euro would spur reach and acceptability and could go a long way toward reducing some of these frictions for every day retail payments whilst ensuring a homogeneous/ consistent user experience. 

The goal of the Central Bank is to harness the benefits these innovations can offer while preserving monetary and financial stability and ensuring that the financial system operates in the best interests of consumers and the wider economy.

Our Governor, as member of the Governing Council, further endorsed these design principles. Eric will provide further details on the project but from the Bank’s perspective, the two main objectives in the current preparation phase of the project are: 

• To lay the foundations for the potential issuance of a digital euro and be ready should a decision be taken to launch in the future. Key activities (as governed by the ECBs’ project plan) underway include finalising the digital euro rulebook , defining rules and processes for the digital euro scheme and seek to establish framework agreements with potential service providers to develop, operate and maintain the digital euro platform and infrastructure. Further testing and experimenting to develop a digital euro is planned.
• The digital euro legislative proposal. The digital euro will have its own dedicated legislative framework which was proposed by the Commission in June 2023 and is currently being debated at council and parliament. The legislation would grant legal tender status for the digital euro and put it on par with cash, requiring the majority of merchants to accept it as legal tender. 

Furthermore, in terms of the domestic backdrop, the Department of Finance is leading the development of a National Payments Strategy (NPS) for 2024-2030. This will set out the priorities that will help shape the future payment landscape in Ireland. As we said in our submission to the consultation on the NPS, Ireland’s retail payments landscape lags behind other parts of Europe in some areas, and addressing these is a priority. 

Should a decision to issue a digital euro be taken, the Central Bank of Ireland, Department of Finance, other state Departments, the financial industry and merchants will need to work together, in a process similar to the launch of Euro cash. 

The Bank is cognisant that there are many stakeholders in the digital euro project and is using events, such as this today, to generate understanding and awareness. They provide an opportunity to build an understanding of the strategic opportunities presented by a potential digital euro offering and allows us to illustrate the benefits of a digital euro for potential end users. We will be moving forward, over the next twelve months, with our structured engagements with industry. This will inform our preparations and our interactions within the ECB project programme, and also our assessment of the journey to travel to be ready, if decisions are made to launch

The Central Bank will also work to understand how a digital euro fits and interacts within the payments landscape in Ireland. We will also monitor the possible financial stability risks, and estimate the macroeconomic implications.

To conclude. We are nearly one year into the preparation phase after which the Governing Council will decide whether or not to proceed towards the launch of a digital euro.

Our focus will be to prepare for the Governing Council decision at the end of this phase and to continue our work with co-legislators. 

In the meantime, we will be engaging with wide ranging stakeholders, so that they can reflect on and assess the implications it will have for them.

Thank you for this opportunity to speak with you today and I look forward to further engagement with you all in the future. 

I’d like to pass to Eric who will take you through his presentation – Many thanks.