In a recent interview, Fabio Panetta, European Central Bank (ECB) board member commented on the increasing need for central bank digital currencies (CBDCs). He said the digital Euro is necessary as people are increasingly turning to digital currencies and there is a possibility that cash will one day die out.
Further, he explained that in such a scenario, it would be essential that people continue to use a currency that is backed and issued by a central bank. Panetta, who is also leading the ECB’s digital Euro project said:
We cannot run the risk that central bank money is no longer used. That’s why we need a digital Euro.
In regards to CBDC replacing cash in the future, the ECB member explained that the digital Euro is not meant to supplant traditional cash banknotes and the bank will continue to issue them as long as there is a demand for them. He said the ECB would ensure no adverse impact on the banking system and is continuously improving its banknotes to ensure they cannot be counterfeited and will launch a new series soon with updated technology.
Giving a rough timeline on the project, Panetta said that the digital Euro project would probably be ready for launch in three to four years if all stages of the process go as planned. He revealed that there are currently 50 people working on developing the European CBDC and assessing its impact on the larger financial system.
Meanwhile, the European Commission is working on legislation to create a regulatory framework for the CBDC and is expected to present the legislative proposal in June. Following that, the Governing Council will deliberate on whether to launch a preparation and testing phase in October.
According to Panetta, the testing phase would likely take two to three years, taking the total expected time for the digital Euro to be three to four years if all member states agree to do so.
Addressing the concerns of the masses regarding privacy and the government’s authority to impose limitations on spending, Panetta said there is no access to the ECB. Further, he explained that data and information would only be given to financial intermediaries who have no obligation to share it with regulators.
The European Central Bank will not have access to personal data.
Notably, Panetta also said that despite the privacy concerns around data and identity, they are necessary measures to combat illegal financial activities. However, there needs to be a balance between preserving confidentiality and fighting illicit financial activity. He added:
This balance will be determined by the legislator. In current discussions, some want to prioritize confidentiality, while others want to prioritize the fight against illegal activities.
In recent times, the ECB has been one of the most active banks that are enthusiastically working towards the CBDC. The bank heads and executives have often been cited as making public comments regarding the importance of CBDC. In March, Christine Lagarde, president of the ECB, said that central banks might lose relevance if they fail to adopt CBDC.
Panetta has also made several public remarks regarding the ECB’s CBDC journey. In an article published in January, he highlighted the dire need for crypto regulations and CBDC adoption while highlighting the declining share of cash payments in Europe from 72% to 59%, while digital payments have increased.
However, the European CBDC has been under immense scrutiny regarding privacy concerns much like the CBDCs across the globe. Nonetheless, following the controversial remarks from the ECB president that triggered concerns about control and privacy, the bank’s executives have used various occasions to call them rumors and paint a different picture.