The European Central Bank has hit back at public "misconceptions" about the digital euro and its future role as a substitute for physical cash.
Wiriting in a blog post, ECB board member Fabio Panetta refutes claims that the central bank intends to abolish cash and then, having done so, impose even lower interest rates on the digital euro for monetary policy reasons. He also gives short thrift to musings that a digital euro would displace banking intermediation and would not be based on a viable business model.
Plans to introduce a digital euro are still at a conceptual stage, with an announcement expected in June as to how best to proceed. But the project has been met with a backlash in Germany, spearheaded by the Deutsche Bundesbank, which has argued that successful tests of a six-year research effort to implement a distributed ledger for electronic securities settlement should negate the need for a central bank digital currency.
Popular German magazine Focus also wrote that a digital euro would be “catastrophic” for savers.
"Central to all our discussions is the fact that a digital euro would be a means of payment that would complement cash, not replace it," says Panetta. "Abolishing cash is not on the table."
Nor would it form part of a project to impose negative interest rates, as cash would still be available to the general public at an interest rate equal to zero.
"The aim of the digital euro would be to offer citizens the possibility of using central bank money as a convenient way of paying digitally," states Panetta. "It is not about monetary policy."
The concern that the ECB wants to draw significant amounts of customer deposits away from banks is also unfounded, he says.
"We believe in the strong merits of allocating credit through private channels - banks and capital markets," says Panetta. "So we have no intention of redesigning the European financial system. Customer deposits and the role of banks as lenders go hand in hand, and a digital euro would not challenge this."
Panetta argues that more attention should be paid to the stability risks if the ECB does not offer a digital currency.
"We must avoid a situation in which European payments are dominated by non-European providers, including by foreign tech giants potentially offering artificial currencies in the future," he says. "Not only could this threaten the stability of the financial system, but individuals and merchants alike would be vulnerable to a small number of dominant providers with strong market power."