Currencies are only as valid as the trust granted to them by the people who are supposed to use them. But a representative survey carried out by the Association of German Banks shows that the general population in Germany is largely unaware of the added value a digital euro might provide. To ensure the project succeeds, it will require careful design and a targeted communicative effort.
The European Commission has recently presented a draft proposal that, in effect, created the necessary prerequisites for the European Central Bank to begin preparations to introduce a digital euro onto the market. The digital euro is, first and foremost, digital central bank money for use by regular people. It will not replace banknotes and coins but can be used alongside them. It can be stored on a smartphone in a digital wallet and then used by consumers to pay at the shops and online.
Many open questions
However, the more concrete the plans for introducing the digital euro become, the more it becomes clear that the project could be subject to many different pitfalls. For example, the digital euro, which will largely consist of existing bank deposits from the general population converted into digital euros, could, if not handled correctly, have a negative effect on the stability of the financial market. This would be the case, for example, if bank customers were to withdraw their deposits en masse and then use the money to purchase digital currency from an ECB account. This scenario would drastically reduce the liquidity of financial institutions and therefore seriously hamper their ability to provide loans.
Another problem is the fact that the European Central Bank would be functioning in multiple roles. Even today, it functions both as an independent central bank and as a supervisor for the banking industry. With the introduction of the digital euro, it would also take on a role as a provider of a payment method. This would put it in direct competition with the banks, meaning there would no longer be any distribution of roles between Central Banks and banks, despite the fact that this distribution has long since been proven to be effective.
Most people have not heard of the digital euro
Above and beyond the professional and technical uncertainties surrounding the project are the challenges involved in explaining it clearly and simply to the general population. As of now, only 43% of people in Germany have heard the term ‘digital euro’, to say nothing of understanding further details about the project. If you ask further questions, it turns out that less than a third (29%) of survey participants have even the slightest idea of what, specifically, the digital euro or why it is being introduced. That alone should point to the amount of communication required before any digital euro could truly get started. Of course, Germans in general are not particularly fond of digital payment methods. 56 percent of people in the country, a solid majority, still say they prefer to pay with cash when purchasing items. However, that is changing: four out of 10 respondents (41%), predominantly young people and high earners, prefer digital payment methods.
There is still a lot of work to do
And of course, Europeans will still need to be convinced that the new currency is beneficial. Most of them are still sceptical: three quarters of respondents (76%) “strongly agree” or “somewhat agree” that a digital euro is not necessary, because the currently available payment options are more than sufficient. After all, there are plenty of different methods available for paying online using a girocard, credit card or various payment apps. More than half of respondents (58%) do not like digital payments because they are not anonymous and therefore negatively affect privacy. And only one fifth of respondents (21%) believes that the digital euro will really make it easier to make payments.
There is no question that the introduction of the digital euro will take a few years yet. However, there is so much to do in that time: there’s the work required to create the infrastructure needed for the new payment method, but there will also need to be a widespread societal debate to prepare Europeans to use the new currency.
The digital euro must provide added value to regular citizens
So what can be done to promote confidence in the digital euro, to ensure that people are ready to accept it – at the latest by the time it is introduced? There are two models of proposed digital euro that would exist simultaneously. The wholesale CBDC (Central Bank Digital Currency), which would be used on the payments market between businesses and banks, and the retail CBDC, which would be used by private citizens. As such, unlike the wholesale CBDC, the retail CBDC must be designed in such a way to truly take into account the needs of private citizens. This means, above all, that the digital euro, just like the physical euro, should be issued by the banks, and, just like the physical euro, all payments made with the digital euro should be processed by the banks. Germans believe that this is very important: according to the Association of German Banks’ survey, three quarters (76%) of respondents would like the digital euro to be issued by their own bank, not the ECB, and four fifths of respondents (81%) want payments to be processed by their own bank.
The euro is the backbone of our economic and financial system. If the digital version of the euro is to contribute a similar amount to securing Europe’s independence, both digitally and in terms of monetary policy, then broad acceptance from the population must be the central focus of any planning. After all, it’s the consumers who will ultimately decide whether or not to use the digital euro, and therefore decide whether or not it will be a success.
