1 December 2021

Towards a Digital Euro – are you ready to shape the future of financial services?

The entrance of this digital euro and its related financial policies will change the financial sector dramatically. Hence, it will be essential for FinTech organisations or credit institutions to monitor and identify policy risks and opportunities for your business operations. Together with the experts of Hague Corporate Affairs your organisation is ready for this future.

From cardless payments to mobile apps and cryptocurrencies, digital technology enables us to make user-friendly payments with increasing ease. However, the growing adoption of digital payment technologies has also led to a decrease in the use of cash. The decrease – and potential disappearance – of cash could represent a threat to the stability of our financial and monetary systems. One of the ways the EU aims to stabilise the financial system is through the introduction of a digital euro.

The European Central Bank (ECB) is currently developing the digital euro as a Central Bank digital currency (CBDC). This currency would combine the efficiency of cardless payments with the security of a central bank-issued currency.

The ECB is expected to start working on a prototype of the digital euro by the end of 2023 and have it in place by 2026. The introduction of the digital euro aims to reinforce the autonomy and performance of the EU’s financial systems.

The digital euro is expected to increase the technical efficiency of the monetary system by getting rid of intermediaries, banks and clearinghouses, money transfers and payments will be made in real-time.

What is a digital currency?

Digital currency is a form of currency that is available only in digital or electronic form. Therefore, these currencies can only be accessed online through computers or mobile phones.

All cryptocurrencies, such as bitcoin, are digital currencies. But not all digital currencies are cryptocurrencies. Cryptocurrencies typically use decentralised control as opposed to a central bank-issued digital currency (CBDC), such as a digital euro.

Cryptocurrencies can be very volatile to trade as a Central Bank does not back them. Therefore, a digital euro being supported by the European Central bank is seen as an alternative to these cryptocurrencies and as such, are more regulated and less volatile.

Where do we stand in the process? Could the Digital euro be a game-changer for the financial services sector?

The digital euro “represents a natural evolution in response to the transformation of the established structure of the financial system”; stated Fabio Panetta, Member of the Executive Board of the ECB, in his speech at the Bruegel Institute in February 2021. Panetta also suggested that these proposals can potentially disrupt the current system, setting up new ways of working. To adapt to this transformation, the ECB will start working on a prototype of the digital euro in 2023 with the aim for it to be implemented by 2026.

A digital euro would establish a safer

and more efficient currency. The digital euro would remove the need for Governments to bail out large banks that are “too big to fail” as a digital euro will be stored at the European Central Bank and does, in theory, no longer need to rely on banks for services. A digital currency system could make deposit insurance schemes less necessary. Furthermore, it would increase consumer choice, reduce transaction costs, and support the digitalisation of the economy.

It is not just the EU working to develop their own digital currency; both the USA and China, as well as tech giants, such as Meta and Amazon, are creating cryptocurrencies. The digital euro will also have geopolitical value by providing European citizens with an alternative for these emerging digital and cryptocurrencies. The digital euro and its related policies will move the European financial system towards a more autonomous and better equipped system to compete with these superpowers.

What are other policy developments on the horizon?

The ECB has indicated it will leave the question of how to get this digital euro into the economy to banks and regulated FinTech companies. The ECB and the EU are not solely exploring the possibilities of a digital euro, but several other key policies are under development to transform the financial market. These include the creation of the Banking Union and Capital Markets Union.

The EU is improving the security and operational resiliency of the financial services sector through the development of the Digital Operational Resilience Act (DORA). The EU also aims to create a new authority to fight money laundering. This is part of the Commission’s commitment to protect EU citizens and the EU’s financial system from money laundering and terrorist financing.

Furthermore, the proposed EU regulation on artificial intelligence will impose new regulatory requirements on companies across the financial sector when they use, provide, import, or distribute computer software for biometric identification, human capital management or credit assessment of individuals.

All these developments will change the financial system dramatically. Hence, it will be critical for FinTech or credit institutions to communicate about their plans to comply with these new standards and policies on the back of the official launch of the digital euro.

Are you ready for the future?

The ECB has indicated that developing a digital euro will take approximately five years, with the potential to roll it out in 2026. Five years to develop the digital euro may seem to be a long time. Still, to respond to this systemic change adequately, your company must be aware of the latest developments and start acting now.

Therefore, if you are operating in these industries– whether you are a payment provider, FinTech start-up, or a credit/bank institution – you may want to keep a close eye on these developments.

Hague Corporate Affairs can help reinforce your reputation as a frontrunner in the financial field by supporting you in monitoring and identifying policy risks and opportunities for your business operations. We can also support you in developing a strong corporate communications campaign to raise awareness amongst your stakeholders of these future changes.

In the end, every organisation operating in Europe’s financial sector will be affected by these developments together with Hague Corporate Affairs, you can stay ahead of the game and shape the future of the financial sector.

Want to get in contact with our experts in Brussels?

Curious about the developments in Brussel that could potentially impact your organisation? Please feel free to reach out to Attilio Caligiani, Partner at Hague Corporate Affairs Brussels.

Attilio Caligiani

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1 December 2021
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