Major Banks Urge Caution With European Union's CBDC Plans

The European Commission should evaluate the impact of issuing a digital euro, the Institute of International Finance said.

AccessTimeIconJun 16, 2022 at 4:04 p.m. UTC
Updated May 11, 2023 at 5:05 p.m. UTC

The European Union needs to carefully consider the impact from issuing a digital euro, according to a lobby group representing some of the largest financial services companies.

In a response to a European Commission consultation that closes Thursday, the Institute of International Finance (IIF) said there seemed to be an assumption that a central bank digital currency (CBDC) is a good idea, even though the European Central Bank has yet to reach a decision. It's an assumption that needs to be verified, according to the IIF response seen exclusively by CoinDesk.

The IIF’s 450 members are dominated by commercial and investment banks, including JPMorgan Chase (JPM) and Goldman Sachs (GS), and also include accountancy groups including KPMG, payment networks including Visa (V), the International Monetary Fund and crypto exchange Coinbase (COIN).

The IIF wants to see “a clear qualitative and quantitative impact assessment of the range of possible designs of a digital euro,” looking at the “various risks … to financial stability,” Jessica Renier, the IIF's managing director for digital finance, said in an interview.

She contrasted a recent white paper from the U.S. Federal Reserve, which “majors on questions, as to the pros and cons and very much ‘whether’ it is advisable to launch a CBDC; and the [European Commission’s] consultation very much on the ‘how’ question,” she said.

The commission consultation published in April considered the legislation that might be needed to underpin a CBDC. Chief among the IIF’s arguments is that by getting into the details of privacy controls and merchant fees, the commission is already assuming the CBDC is a good idea – and maybe needs to take a step back, CoinDesk was told.

It’s hardly the first stumbling block met by the controversial project. At a Wednesday hearing at the European Parliament, the European Central Bank’s executive board member Fabio Panetta said those responding to his own questionnaire on the subject had been “not that enthusiastic, to put it mildly.”

The IIF’s response, which is yet to be made public, highlights that a digital euro could be programmable, allowing it to be automatically transferred as part of smart contracts, and could make it easier to effect cross-border payments, currently a costly and lengthy process.

No more banks?

But those would only work if it has the right design. Renier says there’s little information on, for example, whether the digital euro would work with other payment mechanisms.

Unsurprisingly, Renier doesn’t want the banking sector to be forgotten, arguing that it would likely be the intermediary between central banks and ordinary shoppers. For others – among them EU lawmaker Luis Garicano, who wants the ECB to think bigger – Web 3 is a chance to transform the financial system.

“I wanted to make you kind of try to think a little bit out loud about the alternative solution, which is we don't handicap this project and we let it go where it runs,” Garicano told Panetta at the hearing on Wednesday. He said the CBDC is a chance to prize apart the dual role of banks, between safe storers of people’s cash and riskier lending activities.

Renier, like Panetta, is cautious about any approach that would sideline banks, the source of much lending and credit in the economy.

Doing away with the banks’ role would “would be extremely detrimental to financial stability and the economy,” Renier said. “That is good for no one ... you can't exist without the banking system.”

"I would say a retail CBC certainly poses some potential challenges and risks. They're not insurmountable challenges. But it's important that we work through some of those challenges and risks ahead of time," she said. "The IIF supports the European Commission's efforts to collect answers on on these questions" of design."

CORRECTION (June 16, 2022, 21:00 UTC): Clarifies that the IIF did not recommend reconsidering a digital euro, but rather studying the impact, adds another quote from Renier.


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Jack Schickler is a CoinDesk reporter focused on crypto regulations, based in Brussels, Belgium. He doesn’t own any crypto.

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