Abstract

The CIBP SPARK session hosted by ÖGV in Austria, led by Mr Ismail AKBAL (Advisor Regulatory Affairs), focused on the establishment of the digital euro and its implications for cooperative banks. Mr AKBAL discussed the digital revolution, highlighting the rise of Central Bank Digital Currencies (CBDCs) in response to cryptocurrencies and the European Central Bank's (ECB) efforts towards creating a digital euro to ensure central bank money remains a legal tender. The session covered concerns about the digital euro's impact on privacy, financial stability, and inclusivity, questioning the European Commission's proposal for not compensating banks for the distribution of the digital euro. Mr AKBAL emphasized the potential effects on banks' liquidity and the necessity of designing the digital euro to avoid crowding out private initiatives, while also considering climate-related incentives. The timeline for the digital euro's introduction is projected to start from 2028, following a regulation and implementation phase expected to be finalized around 2025-2026.

Summary

The CIBP SPARK session titled "Establishment of the digital euro from the perspective of Co-operative Banks" was hosted by ÖGV in Austria, featuring Ismail AKBAL, an Adviser on Regulatory Affairs, discussing the development of the digital euro and its implications for cooperative banks. Mr AKBAL highlighted the digital revolution in global money and payment systems, including the rise of Central Bank Digital Currencies (CBDCs) as a response to cryptocurrencies and stablecoins, with over 130 countries exploring CBDCs. He emphasized the European Central Bank's (ECB) efforts towards a digital euro, aiming to ensure the availability of central bank money as legal tender and to promote state-of-the-art payment means while ensuring privacy.

The session addressed the decline of cash, the entry of big tech into financial services, and the distinctions between central bank money and commercial bank money. Concerns about the digital euro's impact on privacy, financial stability, and inclusivity were discussed, including the challenges of its distribution and the role of authorized Payment Service Providers (PSPs). The European Commission's proposal seeks to include individuals without a bank account in the digital economy but raises concerns about banks' obligations to distribute the digital euro without fair compensation.

Mr AKBAL highlighted the fact that the proposal does not cover costs for account creation, KYC checks, and account maintenance, and questioned the European Commission's right to force commercial banks to perform public functions without compensation. He argued that pricing regulation should be market-driven to stimulate competition and that the proposal undermines the decentralized nature of regional banks and their business models. The session concluded that the ECB's entry into payment markets represents a paradigm shift, potentially affecting the European economy and the viability of smaller regional banks.

The necessity of holding limits to prevent deposit outflows affecting banks' liquidity was emphasized, alongside the potential benefits of atomic settlement. However, the digital euro project's design is crucial to avoid unintended consequences, such as crowding out private initiatives. Mr AKBAL concluded that while the digital euro presents opportunities, regional banks must remain vigilant to adapt to the changing landscape.

Mr AKBAL also addressed the potential impact of the digital euro on banks' liquidity, suggesting that while the initial transfer of funds to digital euro wallets might have a one-time effect, the overall impact on banks should not be significantly different from current customer behavior. He expressed concerns about the deposit guarantee scheme being questioned due to the perceived risk-free nature of the digital euro, which could exacerbate liquidity issues for banks. Additionally, Mr AKBAL mentioned the possibility of climate-related incentives with the digital euro, indicating the broad range of factors that banks must consider in response to its introduction. The timeline for the digital euro's introduction is indicated to start from 2028, following a regulation and implementation phase, highlighting the ongoing discussions and preparations needed for its successful integration into the European financial ecosystem. The regulation is expected to be finalized around 2025-2026, with an implementation phase of 18 to 24 months, though it could be postponed depending on the evolving political landscape and discussions in the new European Parliament.

Keypoints

• The CIBP SPARK session titled "Establishment of the digital euro from the perspective of Co-operative Banks" was hosted by ÖGV in Austria, featuring Mr Ismail AKBAL as the guest speaker.
• Mr Ismail AKBAL, serving as the Adviser for Regulatory Affairs at ÖGV, focuses on digitalization, financial markets, and consumer policy topics within the European market, particularly for the Austrian Volksbanken.
• The session aimed to explore the development of the digital euro and its implications for the cooperative banking sector, with around 90 participants registered for the event.
• A Q&A session was scheduled post-presentation, allowing participants to engage directly with Ismail AKBAL by asking questions or providing feedback.
• The presentation highlighted the preparatory work of the European Central Bank (ECB) on the digital euro within the broader context of global central banking efforts towards CBDC issuance.
• Over 130 countries are exploring CBDCs, with various projects at different stages of research, pilot, or launch phases, including significant developments like China's digital yuan.
• Europe, India, and the UK were noted as leading regions in CBDC development, with Europe characterized as a regulatory-focused continent leading in CBDC innovation.
• The emergence of CBDCs was framed as a response to the potential disruptive effects of cryptocurrencies and stablecoins on traditional financial systems.
• The European Commission has launched a two-year investigation phase to examine the design features, advantages, or potential consequences of issuing a Digital Euro.
• The digital euro aims to ensure that central bank money with the status of legal tender remains available to the general public, promoting state-of-the-art and cost-efficient payment means while ensuring a high level of privacy in digital payments.
• Financial stability, financial inclusion, and the adaptation of official forms of currency to technological developments were highlighted as key policy goals of the European Commission for the digital euro.
• The digital euro's legal tender status means it cannot be generally refused by payees in the settlement of a debt, challenging the autonomy of member states like Austria, which has a strong cash culture.
• Payment Service Providers (PSPs) in the European Economic Area will have access to distribute the digital euro, differing from traditional constraints that limited distribution to banks, aiming for a level playing field among financial institutions.
• The European Commission's proposal includes measures to ensure the digital euro serves as a means of payment rather than a store of value, addressing concerns about financial stability and the liquidity of commercial banks.
• Limits on the holding and use of the digital euro, including a proposed €3000 threshold and restrictions on fees and charges for digital euro transactions, aim to balance consumer needs, financial stability, and the interests of various stakeholders.

Glossary

• Central Bank Digital Currency (CBDC)

  A Central Bank Digital Currency (CBDC) is a digital form of a country's fiat currency, issued and regulated by the nation's central bank. It aims to modernize the financial system, offering a secure and efficient means of conducting transactions digitally.

• Climate Concerns

  Climate concerns refer to the anxieties and issues related to the changing patterns of the Earth's climate, primarily caused by human activities. These include global warming, extreme weather events, and the long-term impacts on ecosystems, human health, and economies.

• Commercial Banks

  Commercial banks are financial institutions that accept deposits, offer various loans, and provide other financial services to the public. They generate revenue primarily through interest on loans and fees for services.

• Competitive Survival

  Competitive survival refers to the ability of an entity, such as a business or species, to maintain its existence and thrive in a competitive environment by adapting and overcoming challenges. It involves strategies and actions that ensure sustainability and growth amidst competition and changing conditions.

• Digital Euro

  The Digital Euro is a proposed digital currency that would be issued by the European Central Bank, intended to complement physical euro banknotes and coins. It aims to provide a secure and efficient form of money in the increasingly digital economy of the Eurozone.

• Digitalization

  Digitalization refers to the process of converting information into a digital format, where data is organized into bits. This transformation allows for easier access, sharing, and analysis of information through digital devices and networks.

• Economic Adaptation

  Economic adaptation refers to the process by which individuals, businesses, or economies adjust their behaviors and strategies in response to economic changes or shocks. This includes adapting to new market conditions, technological advancements, or changes in consumer preferences to maintain or improve economic efficiency and sustainability.

• Financial Regulation

  Financial regulation refers to the laws and rules that govern financial institutions, markets, and transactions to ensure stability, integrity, and fairness. It aims to protect investors, maintain orderly markets, and prevent financial crimes.

• Financial Stability

  Financial stability refers to a condition where the financial system, encompassing institutions, markets, and infrastructure, operates efficiently and is capable of withstanding shocks without major disruptions. It implies that entities can meet their obligations, confidence in the financial system is maintained, and the system supports economic growth.

• Global CBDC Projects

  Global CBDC (Central Bank Digital Currency) projects refer to initiatives by central banks around the world to develop and implement digital forms of their national currencies. These projects aim to enhance the efficiency of payment systems, improve financial inclusion, and address the evolving landscape of digital finance.

• Innovation in Payment Systems

  Innovation in payment systems refers to the introduction of new technologies, processes, or practices aimed at improving, simplifying, or securing financial transactions. This can include advancements in digital payments, mobile transactions, blockchain technology, and contactless methods, enhancing user experience and efficiency.

• Legal Tender

  Legal tender refers to money that is officially recognized by a legal system as acceptable payment for debts or financial obligations. It must be accepted if offered in payment of a debt.

• Liquidity

  Liquidity refers to the ease with which an asset can be converted into cash without significantly affecting its market price. It is a measure of the ability to quickly buy or sell assets in the market with minimal price movement.

• Mainstream Adoption

  Mainstream adoption refers to the stage at which a product, service, or technology is accepted and used by the majority of the general population. It marks the transition from being utilized by early adopters and innovators to widespread acceptance and use among the public.

• Payment Service Providers (PSPs)

  Payment Service Providers (PSPs) are companies that offer merchants online services for accepting electronic payments by a variety of payment methods including credit card, bank-based payments such as direct debit, bank transfer, and real-time bank transfer based on online banking. PSPs connect merchants, consumers, card brands, and banks, facilitating the processing of transactions and enhancing the ease of payment for online purchases.