ECB Digital Euro Consultation

July 2021

Question 1: Do you have any further comments about the ranking that you have indicated above?

Digital euro central bank money and commercial bank money must look the same to the consumer - a euro is a euro.

The benefit of a digital euro is to allow consumers and businesses to do more with their money i.e. pay in innovative new ways, with innovative new services, products and apps, make it easier to manage their money, and for businesses to enable new business models. This benefit also extends to those who lack bank accounts, and allows them to particpate in the digital economy with digital payments, but using a digital wallet instead of a bank account.

Question 2: Do you envisage any challenges associated with a digital euro that would prevent you or others from using it? If so, what are they?

Government surveillance and corporate abuse of information - whether actual or perceived

Question 3: What user features should be considered to ensure a digital euro is accessible for people of all ages, including those who do not have a bank account or have disabilities?

No registration, ubiquitous acceptance, permissionless use

Digital wallets should be free for anyone to download and to use to receive and make digital euro payments. Payments can be wallet to wallet, wallet to bank account or bank account to wallet.

For those with bank accounts, they should automatically get the digital euro wallet functionality seamlessly through their banking service e.g. mobile banking, hence be able to access the same capabilities on the digital euro wallet infrastructure as the digital euro wallets. Bank customers should never know if digital euro or commercial bank money is used in their transactions. It is the responsibility of the bank to make the digital euro available when the transaction is on the shared ledger, and to manage its aggregate digital euro balances for its customer operations, in a similar way it manages its reserves for their payments using commercial bank money.

Question 4: There are two approaches we can take to make a digital euro work, one that requires intermediaries to process the payment and one that doesn't.

If we design a digital euro that has no need for the central bank or an intermediary to be involved in the processing of every single payment, this means that using a digital euro would feel closer to cash payments, but in digital form – you would be able to use the digital euro even when not connected to the internet, and your privacy and personal data would be better protected.

The other approach is to design a digital euro with intermediaries recording the transaction. This would work online and allow broader potential for additional services to be provided to citizens and businesses, creating innovation opportunities and possible synergies with existing services. For example, it could make it easier to integrate a digital euro into currently available electronic banking services and applications.

From your perspective, which of the following do you find most appealing? (select one):

A combination of both

Question 5: Do you have any further comments regarding your answer to the question above?

As a consumer, a digital euro must look like any other euro - if I am aware I am holding digital euros in a wallet and normal euros in a bank account I will be confused

Question 6: What role do you see for banks, payment institutions and other commercial entities in providing a digital euro to end users?

There should be one shared ledger (central, distributed or otherwise) used by the ECB, all banks, PIs, EMIs, other commercial entities and other end users. Commercial banks should be able to issue digital euros on this same ledger as the central bank, but in return for reserves deposited with the ECB.

The only (but huge) benefit of a digital euro is enabling innovation, which only comes from a single shared ledger which is instantaneous, cheap, very flexible and allows programmable money (smart contracts). So, the digital euro must be on a single shared ledger.

Privacy is required for users only to see their transactions and no others - including the ECB which has no need to see end user transactions (or at least those below, say 10 million EUR).

Question 7: A digital euro may allow banks and other entities to offer additional services, on top of simple payments, which could benefit citizens and businesses. What services, functionalities or use cases do you think are feasible and should be considered when developing a digital euro?

Programmable money, which has endless uses – examples include self-paying share dividends, continually paid salaries, micropayments, smart meters and other machine to machine payments

Question 8: What requirements (licensing or other) should intermediaries fulfil in order to provide digital euro services to households and businesses? Please base your answer on the current regulatory regime in the European Union.

The same as credit institutions, e-money institutions, payment institutions, PISPs and technical service providers

Question 9: Which solutions are best suited to avoiding counterfeiting and technical mistakes, including by possible intermediaries, to ensure that the amount of digital euro held by users in their digital wallets matches the amount that has been issued by the central bank?

A single shared ledger - accessible through digital wallets and smart contracts directly reading and writing to the shared ledger.

Digital euros can be issued by any institution on the shared ledger in return for depositing reserves at the ECB. The ECB can also issue digital euro but there is likely to be no need (unless the ECB wants to signal that the digital euro is central bank money - since the shared ledger is an ECB ledger, money on it is central bank money, even if the issuing operation is done by a commercial bank).

Question 10: What technical solutions (back-end infrastructure and/or at device level) could best facilitate cash-like features (e.g. privacy, offline use and usability for vulnerable groups)?

Digital wallets with SIM technology, and virtual HSMs in the cloud.

Question 11: What should be done to ensure an appropriate degree of privacy and protection of personal data in the use of a digital euro, taking into account anti-money laundering requirements, and combating the financing of terrorism and tax evasion?

Allow consumers to use the digital euro in digital wallets (issued by e.g. Fintechs and e-money PSPs) without requiring registration or permissioned access, or needing a bank account. These wallets can be be used for cash-like purchases both physically e.g. QR codes at POS or online/in-app, but only for low value payments, say max 300 euros, and max 300 euros per week. These wallets can be monitored for AML/CTF behaviours, but anonymity/privacy is preserved. If it looks like they are being used in placement, layering and other tell-tale criminal patterns (through transaction monitoring of the shared ledger), the users can be asked to identify themselves or the wallet will be locked; thus wallets can be used anonymously without facilitating financial crime, and instead can be used to help identify it if they are misused.

For consumers who prefer to use their bank accounts, there should be no distinction to them between a digital euro and bank deposit (they will never understand it, currency has to be fungible). Instead, they will see more innovation and new uses of their mobile banking apps and open banking APIs, enabled by the digital euro. It is up to commercial banks behind the scenes to manage digital euro balances and commercial bank deposits combined for their customers. Thus the same privacy controls and financial crime controls for consumer banking can be preserved.

Question 12: The central bank could use several instruments to manage the quantity of digital euro in circulation (such as quantity limits or tiered remuneration), ensuring that the transmission of monetary policy would not be affected by shifts of large amounts of commercial bank money to holdings of digital euro.

What is your assessment of these and other alternatives from an economic perspective?

(Tiered remuneration is when a central bank sets a certain remuneration on holding balances of digital euro up to a predefined amount and a lower remuneration for digital euro holding balances above that amount.)

Allow commercial banks to issue the digital euro on the shared ledger, in return for depositing 100% reserves (bonds etc) at the ECB. There is no need for the ECB to actually issue the digital euro for commercial bank operations, unlike how it does for physical cash where it has to manage the printing process. Thus the ECB has the same monetary control over the digital euro as it does over physical cash. Although demand for physical cash is a limiting factor in itself, if the commercial banks are required to manage digital euros and bank deposits together for their customers, and if standalone digital euro wallets (see earlier answer) with usage restrictions limit the amount of digital euros outside the commercial banks, then the ECB retains control of the quantity of digital euro in circulation.

Question 13: What is the best way to ensure that tiered remuneration does not negatively affect the usability of a digital euro, including the possibility of using it offline?

We believe with the solution we have proposed, tiered remuneration is unnecessary.

We also believe it is inappropriate as:

• a digital euro issued by the ECB should have no remuneration as there is no risk in holding it
• a digital euro with tiered remuneration is no longer properly fungible, therefore by definition it will fail to perform properly as money and as a unit of account, creating unnecessary monetary and societal complexities

Question 14: If a digital euro were subject to holding balance limits, what would be the best way to allow incoming payments above that limit to be shifted automatically into the user's private money account (for example, a commercial bank account) without affecting the ease of making and receiving payments?

There is no need for balance limits.

If incoming payments into a digital euro wallet outside of commercial banks (see earlier answer) accumulate to a high value, it will be difficult for the holder to use the funds with restrictions on the size and frequency of outgoing payments. Large incoming payments from bank accounts to digital wallets can be prevented by ensuring commercial banks limit the size and frequency of these payments.

For incoming digital euro payments into bank accounts it is up to the commercial bank to manage its holdings of digital euros and its normal deposit liabilities. If it has too much digital euro on the shared ledger, it can sell them back to the ECB in exchange for reserves into its reserves account. If it has too little digital euro, it can issue more digital euro to itself on the ledger in return for paying from its reserves account to the ECB. It needs to keep its customers insulated from knowing the difference between digital euros and deposits, so these operations are invisible to the customer. However, it will need to manage its digital euor balances to meet its customer's demand for digital euros when they are making use of innovative use cases requiring the digital euro such as smart meter payments, or QR payments at POS.

Question 15: What would be the best way to integrate a digital euro into existing banking and payment solutions/products (e.g. online and mobile banking, merchant systems)? What potential challenges need to be considered in the design of the technology and standards for the digital euro?

Create a digital wallet and smart contract infrastructure on a shared digital euro ledger, for initiation and acceptance of digital euro payments - peer-to-peer, in-app, at POS (QR), in smart meters and other devices and so on. This enables the digital euro to drive innovation independent of the commercial banks (but they can still participate), and creates a level playing field for new entrants and innovators.

Commercial banks need to integrate the digital wallet and smart contract capabilities into their mobile banking apps and APIs, so their customers can use the same digital euro shared ledger and the innovation it enables. These are additional to existing capabilities using commercial bank money, so little integration is required except in front-end apps. The management of digital euros can be done at the aggregate level by the commercial bank to meet the demands of its customers in using the new servcies available through the digital euro infrastructure.

Question 16: What features should the digital euro have to facilitate cross-currency payments?

Smart contracts to enable atomic swaps between the digital euro wallet and the digital wallet of the other currency

Question 17: Should the use of the digital euro outside the euro area be limited and, if so, how?

No

The digital euro shared ledger should be usable globally. Anyone can download a digital euro wallet without permission, without registration and without a bank account. However, these wallets have limited use with limits on payments and frequency. Controls can be put in place to prevent abuse of these wallets and their use for financial crimes.

The other way to access digital euors on the shared ledger is through digital wallets embbeded into bank services and products, subject to the usual account rules of the EU.

Question 18: Which software and hardware solutions (e.g. mobile phones, computers, smartcards, wearables) could be adapted for a digital euro?

Mobile phones, smart meters, devices in cars, sensors ad so on

Question 19: What role can you or your organisation play in facilitating the appropriate design and uptake of a digital euro as an effective means of payment?

Advise on how to:

• configure the digital euro to drive innovation in payments and work with commercial banks without being dependent on them
• put in place the conditions to drive network effects to drive adoption of the digital euro by consumers and businesses