Central Bank Digital Currencies and the Digital Euro (cepInput)

"In China and Nigeria, CBDCs are already being used for retail payments. For other financially complex regions, such as the Eurozone or the USA, this would be premature," warns cep economist, Victor Warhem. In July last year, the European Central Bank (ECB) gave the green light for the development in the Eurozone.

According to Warhem, emerging markets face challenges that make the use of CBDC for retail payments worthwhile. These include, first and foremost, secure and always available access to payment instruments. In contrast, more developed countries want to improve the efficiency and security of their retail payment systems.

"Central banks are responding to the boom in crypto assets, the digitalisation of payments, the simultaneous decline in cash use and the return of currency geopolitics by introducing CBDS in particular," Warhem explains. These reactive reasons prompted central banks to develop CBDCs to protect their respective currencies. Added to this, he says, is the goal of maintaining a digital, risk-free means of payment for private transactions and avoiding the substitution of currencies with digital currencies from abroad, such as the e-CNY from China.

"As far as the digital euro is concerned, European consumers are satisfied with their traditional means of payment. There is demonstrable strong opposition to the digital euro because people fear the abolition of cash," says Warhem. This could lead to a failure of the project. "However, the ECB must be ready to introduce its solution when the right time comes, probably within ten years" he adds.

"The digital euro should not hinder or crowd out innovations in the private sector, but complement and enable them," demands cep board member, Henning Vöpel. The regulation of this project, he says, must aim to create a level playing field in private payments in the EU and protect them, especially since there are already very promising innovative products.

The director of Centre de Politique Européenne | Paris, Marc Uzan, pleads for the Eurogroup to push for a CBDC system that facilitates cross-border payments between large financial institutions. "There is a big gap in the market for cross-border payments and it is right that central banks intervene to create interoperable CBDC systems when the private sector is not able to do so," Uzan says.