European Federal Bank Rally Support for Digital Euro

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The European Banking Federation (EBF) has just produced a report in which it discusses its perspectives on the digital euro as well as those of the digital money ecosystem in Europe as a whole.

The report, published (1) on the 28th of March, examined the digital euro from the perspective of stability and privacy, both of which are extremely important value points for financial institutions.


The Private Sector Plays an Important Part

As stated by the EBF, the launch of the digital euro must first begin with the formation of a partnership between the public and commercial sectors.

The agency strongly emphasized the idea that the private industry has a significant part to play in realizing its vision for the digital ecosystem in Europe.

For instance, it mentioned infrastructure as one of the most important areas in which Europe needs to focus on itself and lessen its reliance on “actors” from other parts of the world.

In addition, the study admitted that there is not currently an appropriate framework to guarantee that significant alterations will be made to the monetary and financial system to reduce the associated risks.


The Plan

According to the EBF, the ecosystem it plans to create will have three different components. These are the wholesale central bank-issued digital currency (CBDC), the retail digital euro, and bank-issued money tokens.

The retail digital euro is based on the euro. On the other hand, the digital euro itself is intended to function according to a system that comprises three distinct yet interconnected layers.

The levels are as follows: the level of the European Central Bank (ECB), the level of Industry A, and the level of Industry B.

The European Central Bank (ECB) will be in charge of the issuance of digital euro currency and its convertibility and ongoing maintenance. Payment regulations and interoperability are going to be handled at industry level A. On the other hand, when we get to level B, the private sector will be in charge of directing the development of creative solutions or other benefit services.

In addition, the report discussed the requirement for a wholesale CBDC to facilitate the settlement of interbank transfers. It also mentioned the rationale behind the requirement of a wholesale CBDC.

According to the research report, a retail digital euro will not be able to accomplish all of the policy goals that have been set forth by the ECB.

As a result, it is anticipated that the CBDC will further bolster the European Union’s monetary sovereignty as well as its strategic autonomy.

The bank-issued money tokens make up the third and final component of the EBF’s vision for the future of the digital economy. These tokens will reportedly play a significant role in the requirements of businesses, as stated by EBF.

In addition, the report pointed out that there are certain parallels to be drawn between the money tokens and Industry Level B of a digital euro program.

Yet, it also acknowledges that additional standardization should be implemented as soon as possible.

The European Banking Federation is comprised of around 3,500 individual banks in addition to 33 national banking associations.

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