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G+D: The Impact of Digital Euro on Europe’s Future Prosperity

The Governing Council of the European Central Bank (ECB) announced in July that it will be launching the investigation stage of a digital euro project. All over the world, central banks are working under high pressure on digital currency projects – the British Central Bank recently set up a task force, Sweden extended the test phase for its own CBDC, and China announced the launch of its digital currency DCEP (Digital Currency Electronic Payment) as early as February 2022.

Given these worldwide initiatives to issue digital money as a legitimate means of payment in addition to cash, the launch of the digital euro is an important signal for the sovereignty and stability of European currency.

Dr. Wolfram Seidemann, CEO, Giesecke+Devrient
Dr. Wolfram Seidemann

Providing a secure, legally legitimised alternative to speculative cryptocurrencies such as bitcoin, the CEO of Giesecke+Devrient (G+D) Dr. Wolfram Seidemann discusses the programmability of digital payment options, its future use cases, and the changes that commercial banks will have to make to adapt to the use of the digital currency.

Having joined G+D in 1999 as Head of International Research and Development Chipcard, Seidemann held various senior management positions at G+D subsidiaries, including Singapore, India and Taiwan.

Digital currencies are gaining in interest and popularity, with the recent figures showing more than 110 central banks are currently conducting studies or pilot schemes for the development of central bank digital currencies (CBDCs).

It is no surprise then that the European Central Bank (ECB) has recently commenced a ‘formal investigation phase’ to develop a digital euro. Within the next two years, it will explore the applications and impact the digital euro might have on Europe’s financial system. In a series of prototyping and focus groups, the ECB will test the design and distribution to merchants and citizens, as well as propose the changes needed for European legislation.

As worldwide initiatives to issue digital money pick up, the digital euro launch is an important signal for the sovereignty and stability of the European payment landscape. However, with greater payment choices, how will commercial banks have to adapt?

The roles and possibilities ahead

Commercial banks will play an important part in the issuance of the digital euro. As customer-facing partners in the CBDC ecosystem, they will be responsible for its distribution, while central banks will be in charge of the creation and destruction of the new currency. This presents many opportunities for commercial banks who will not only retain their previous role and function, but also develop new financial products and services, benefiting their customers from improved and expanded payment experiences. They could, for example, bind customers even more closely to themselves with special apps for the use and custody of CBDC, linking them with new CBDC-based customer services.

The introduction of a general CBDC paves the way for innovation with new digital business models and additional revenue streams. Automated functions in e-commerce can be used and further developed. Linked value chains and smart contracts ensure that the rules stored in e-contracts prompt pre-defined actions at certain trigger values and monitor their execution independently. With a clear and proven division of responsibilities, commercial banks and financial services providers will not need to fear competition from central banks. Consumers will be supplied and serviced in a decentralised manner.

As a new payment medium, the digital euro will foster financial inclusion by being available to both EU and non-EU citizens, regardless of their social status, location and the ability to access bank accounts, payment service providers or the internet. Unlike cryptocurrencies and stablecoins, the digital euro will provide a secure and legal alternative means of payment. It will nurture economic growth, modernise payment infrastructure and improve payment efficiency, complementing – not replacing – cash in the future. As a platform for growth of the digital economy, the digital euro will open new markets and many opportunities for commercial banks to gain competitiveness.

The case of programmability

One key feature that binds the opportunities arising from the issuance of digital euro is programmability.

Whilst programmable money is designed with in-built rules, programmable payments enable automatic transfers of money when pre-determined conditions are met. Similar to today’s standing orders but with added complexity. Programmable transfers present an enormous potential with the rising “economy of things” and connected devices as payments can be automated and money can be sent at the same time as receiving services. This would significantly improve business productivity, make transactions more convenient, and empower new services, processes and workflows.

When designed right from the start, a CBDC with programmable features will enable future innovations. It could be a door opener to new markets giving way to entirely new business models. Pioneering programmability solutions are needed to form the basis for innovation rather than affect the properties of the currency itself. The programmability logic doesn’t have to reside at the core layer of a CBDC, but rather with commercial banks and other financial services providers to improve the overall performance and reduce the complexity of a CBDC ecosystem. Programmable payments can be triggered in secure digital wallets issued by banks, providing value-added services to businesses and consumers on top of a CBDC.

A digital currency for a prosperous future

The digital euro will offer a new means of payment, combining the advantages of cash with the convenience of the digital world. Commercial banks will play a key role in distributing the new currency, creating new services and solutions for their customers to benefit from. With a proper CBDC infrastructure and well-thought-out design, the digital euro could expedite the economy of things and move the European Union into an ever more digital future, revolutionising our relationship with money. As the wait continues for the digital euro to become a reality, the ECB must now actively shape the framework conditions and rules of the game in order to secure both its economic sovereignty and its role in the global economy.


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