BRUSSELS ― Banks don’t like it, ordinary people have never heard of it, and shopkeepers don’t want to pay for it. Apart from that, the European Central Bank’s digital revolution is getting off to a really great start.
The ECB needs to find a way of not only getting all these groups to support plans for its digital version of euro banknotes and coins ― which it hopes to launch in 2026 ― it must, crucially, work out how it’s going to be paid for.
The stakes couldn’t be higher. “How central banks navigate the digital era – such as innovating their payment systems and issuing digital currencies – will also be critical for which currencies ultimately rise and fall,” ECB President Christine Lagarde said in a speech this month in New York. “This is an important reason why the ECB is exploring in depth how a digital euro could best work if launched.”
The ECB sees the project as vital to stay relevant in an age when cryptocurrencies and big tech are eyeing the payments market.
The idea is to mint a central bank-backed digital currency that people can store in online wallets on their smartphones. Using this form of virtual cash would mean money can change hands within seconds, as opposed to several days as is the case for most payments, and become less dependent on U.S. credit card giants Mastercard and Visa for crossborder payments.
But transactions won’t come fee-free.
Banks see no reason why they should foot the bill even though they’re the chief candidates to distribute and handle digital euro payments. The industry is already skeptical of the project. Telling them to pay for it too would be a nonstarter.
Another idea is to charge people directly as they use it. But that hardly seems like a good tactic to win over the public, which has heard little of the plan.
Instead, decisionmakers in Brussels and Frankfurt have floated the idea of shopkeepers themselves footing the bill; a fee that would mimic the credit card business model.
However, judging by a group of randomly selected shopkeepers in Brussels, they might find that difficult to swallow.
Not fair?
“We already pay high fees for credit card transactions,” said Baptiste Lardeux, 40, who co-founded a wine shop called Titulus in the Ixelles area of Brussels. “It’s not normal that new fees come every time there’s a new payment method.”
Lardeux and four other shopkeepers who spoke to POLITICO were quick to lament the costs they already face from accepting plastic from Mastercard, Visa and American Express.
Only Simona El Harar, who owns a restaurant called Kitchen 151, a stone’s throw from Lardeux’s, saw merit in the ECB project — as long as any fees were capped. “Otherwise, it’s not worth it,” the 44-year-old said.
El Harar’s view is shared among retailer representatives in the “market advisory group” the ECB uses as an industry sounding board for designing the digital euro.
A small fee, “as close to zero as possible,” might be worth the pain if the digital euro becomes popular, said Axel Schaefer, the payment regulation and innovation specialist for INGKA group, the parent company behind IKEA.
Shopkeepers might not get the choice. They may well be forced to accept the digital euro under rules the European Commission is set to propose in June. Without safeguards in place, Schaefer is concerned that banks — who would be responsible for setting the fees passed on to shopkeepers — could overcharge. The ECB shares this view.
“In case market forces will not contribute to efficient pricing, authorities and regulators may have to intervene … by capping excessive fees,” he said.
Another way?
But this could all be avoided if the central banks picked up the tab themselves and left it to public authorities to distribute the digital euro as a public good, an idea quietly mooted by some politicians and bankers.
The ECB could in principle use profits that the eurozone’s 20 national central banks make from printing banknotes — an age-old practice known as seigniorage. This income isn’t always stable, however, and the ECB has warned that siphoning off this income could force it to invest in riskier assets to cover the distribution costs.
Profits from seigniorage also feed into state coffers, making the idea less attractive to finance ministers.
The European Parliament is preparing to legislate for the virtual extension of euro banknotes and coins after the summer.
Whatever ideas the ECB and Commission propose, MEPs are convinced that charging shopkeepers a fee makes a mockery of anyone trying to sell the digital euro as a virtual extension of cash.
“Fees for shopkeepers contradict the idea that a digital euro should be equivalent to digital cash,” said German conservative Stefan Berger. “We need a digital euro that makes payments easier, not more complicated. If this is not the case, it will be difficult to convince citizens to use it.”
