A recent paper on the digital euro from the Veblen Institute and Positive Money criticizes the current direction of the digital euro, saying it falls short of its potential. The paper, “a digital euro for the people”, argues that the European Central Bank (ECB) has “heeded to the bank lobby” and baked “their interests into the design of the digital euro” by imposing holding limits. Neither organization is a fan of commercial banks, so they are unhappy about the potential dependence on them as digital euro intermediaries. They would prefer to see a bigger role for the public sector and non profits, highlighting that the current wording does not rule this out.
Specifically, they note that the term ‘payment service provider’ (PSP) is legally a broad one, so we dug deeper. Under the Payment Services Directive 2, PSPs include:
- banks
- electronic money institutions
- post office giro institutions
- payment institutions
- the ECB and national central banks
- member states and their regional or local authorities.
In other words, even though it’s not currently proposed, technically you could download a digital euro wallet directly from the central bank or government. In reality, the holding limits would mean for most people, a wallet would need to link to a bank account. But those holding limits are likely to be relaxed as the digital euro becomes more mature.
Last year’s draft digital euro legislation included an even broader definition of PSPs, which adds exemptions for natural persons or organizations that process less than €3 million in transactions a month. Hence, this could support non profits.
Other CBDC objections in the paper
Apart from different types of intermediaries, the Veblen Institute and Positive Money see KYC as an impediment to financial inclusion, so they’d like a tiered identification system. They’d prefer no identification requirements for low value peer-to-peer designs such as prepaid smartcards. Additionally, they expect these types of payments to have the same level of privacy as cash. Given their distaste for banks, they want to ensure that “the digital euro’s legal and technical core infrastructure should be public and work independently of any private system.”
For us, the definition of a PSP was a revelation. If there are concerns about central banks or national Treasuries providing cash to the public directly, then future digital euro legislation should exclude them from the definition of a PSP. With politics in several jurisdictions shifting away from the center ground, it might not be desirable to have a larger state role in money than envisaged with the digital euro so far.
