The idea of ​​having a deposit account directly in European Central Bank, which will be protected from possible failures in the banking system and therefore will not threaten a possible haircut, is not a theoretical scenario. New roadmap for digital eurowho will respond to this threat was announced last week by the ECB, taking that prospect a step closer, with the next appointment scheduled for October, at a meeting of central bank governors who will make final decisions on the timing of implementation. digital euro (digital euro).

The digital euro will be no different from a joint account of an individual or a company in a commercial bank. In practice, it will be a medium of exchange for transferring money or paying for purchases, as is the case today with conventional currency. Thus, someone will be able to make a purchase in a commercial store using their ECB account instead of their bank account or card. The difference will be that the money placed with the ECB will not be subject to the threat of a “haircut”, as it will be surrounded by enhanced protection of the Central Bank.

throughout Europe

In its initial version, the digital euro will concern residents, merchants and governments of the Eurozone, with the prospect of expanding to the countries of the wider European area. In a progress report released last week, the ECB outlines how the currency will enter our lives, saying “end users will be able to access and use the digital euro either through existing online banking and payment applications, those. Internet or mobile banking, which they hold in commercial banks, or through a digital euro application to be provided by the Eurosystem.”

In essence, digital euro integration services, the report says, “will not deviate from established procedures for opening a joint account with a commercial bank or payment institution.”

Accordingly, access will be through a mobile phone and an application, which will be either a new application of the ECB or an application of a commercial bank with which a natural or legal person cooperates. However, the money will be deposited directly with the Central Bank and will be fully guaranteed by the Eurosystem. As the Deputy Administrator of the Bank of Greece Cristina Papakonstantinou noted, speaking at the Payments 360 conference, “if the Eurosystem adopts a digital euro, it will be a means of payment that will include the characteristics of direct transactions, while maintaining the properties of central bank money, such as accessibility, safety and ease of use.

The amount and terms of the deposit with the ECB have not been finalized. As a pilot, it is proposed to start with 3,000 euros.

Safety

For countries like Greece, which endured the experience of capital controls as well as the threat of deposit haircuts during the years of the great economic crisis—memories returned in the midst of an election campaign—the prospect of a central bank-guaranteed digital currency is meant to stave off that threat. Thus, the need to look for money in banks or keep money in a mattress will disappear even in extreme conditions, as it could be a new financial crisis, such as the one that happened recently with the collapse of American banks.

The amount and terms under which the ECB will hold a deposit have not yet been determined, and its proposal to start as a pilot with €3,000 remains in an attempt to prevent commercial banks from accumulating and withdrawing deposits.

It also raises the question of whether this money will be paid out and on the basis of what interest rate, a parameter that has not yet been finalized. However, it was ensured that the digital euro would be a kind of “public good” and the Eurosystem would take over the infrastructure costs so that the digital currency was accepted both at physical merchant terminals throughout Europe and in online stores. , for online shopping.

The answer to big tech

The expediency of creating a digital euro is not limited to the need to protect the deposits of European citizens. It also has geopolitical quirks as it attempts to thwart the prospects of big tech companies like Google and Apple or the dominance of international payment systems like Visa and MasterCard in the European payment space. Ringing off the upcoming payment challenge was Apple’s recent launch of a new deposit account with an interest rate of 4.15%, ten times the average US interest rate. , and already Viber through the Viber Pay service launches direct payment services in our country.

European directive on direct payments is approaching

So-called instant payments, that is, money transfers from account to account based on direct payment technology both between individuals and between enterprises, is one of the fastest growing industries in the world with a total income of 2.1 trillion. dollars in 2022.

It is estimated that they will become the dominant form of payment in Europe – they are already the main payment instrument in the countries of Central and Northern Europe – and should monopolize developments in the field of payments, ensuring the speed and convenience of transactions.

“If direct payments are not developed enough to meet the demand of citizens for innovative payments, other entities will fill this gap,” said Cristina Papaconstantinou, deputy head of the Ministry of Finance, speaking at the “Payments 360” conference. , i.e. global technology companies, are gaining an increasing role and market share in providing solutions that interact directly with payment users, and over-reliance on non-European suppliers and infrastructure can hurt competition, making the European payments market less dynamic and diverse. and innovative. It could also leave important sectors of our economy open to a selection of companies with global market power that do not necessarily share Europe’s strategic goals,” he said.

Global technology companies are steadily gaining a greater role and share in the payments market.

This is why the European Commission is promoting a new regulation that obliges payment service providers to provide direct credit transfers through retail payment initiation channels such as scanning a smartphone’s QR code, thus aiming to reach a critical mass in terms of the number of transactions. and users. In addition, the regulation also regulates the issue of invoicing for direct payments, ensuring that fees for the consumer are attractive and transparent. In Europe, direct payment schemes such as our Iris launched by DIAS are the main vehicle for e-commerce payments. The largest scheme is Blik in Poland, through which 67% of e-commerce in the country is carried out, and accordingly the schemes of the Netherlands, Finland, Germany, etc. are strong, that is, local schemes that dominate payment systems such as Visa and mastercard.

It is no coincidence that the European Payment Initiative (EPI) is “reviving” with a focus on instant payments and a few days ago EPI announced the acquisition of two companies iDEAL (Netherlands) and PQI (Luxembourg), but also the expansion of the banks that will participate in system. The EPI product will be a digital wallet solution and an account-to-account direct payment tool under one brand name, unified across all European countries.

Deposit guarantee

The recent banking turmoil in US banks has brought back memories of the possibility of a financial crisis spreading and has alarmed authorities at the EU level seeking the golden ratio between the need to protect deposits, maintain the stability of the financial system, and adopt a digital currency. The turmoil on the other side of the Atlantic coincided with problems at Credit Suisse, and the dust from the collapse of the Swiss bank served as a fuse to strengthen national deposit guarantee schemes with superpowers to save the bank. “Doctrine” in the EU based on the Commission’s proposal released in April to strengthen national deposit insurance systems, far from creating a unified deposit insurance mechanism at the European level, it is turning into a “heavy industry” of bailing out banks from national systems such as TEKE in our country. Under the Commission’s proposal, national systems, ie TEKE, could become an institution like the HFSF intervening in banking crises.

In addition to a deposit guarantee of up to 100,000 euros, which is still in place today, it will be able to recapitalize banks, sell their assets and act as a “rescue” of banks at the national level in times of crisis.