Imagine a future in which 350 million Europeans enjoy unlimited, free means of payments without credit cards or banks. To use this new currency, the digital euro, all you need is your phone. Pay rent, receive your salary, buy groceries – all with one app.
By providing a safe alternative to bank deposits, the digital euro breaks open the competitive landscape for payments and savings currently dominated by banks. This reduces, according to advocates for the currency, society’s dependence on the banking sector, stabilises the European economy, and eventually makes systemic banking crises a thing of the past.
“Society needs digital public money,” Vicky van Eyck, director of Positive Money Europe, a civil society group that demands a reform of the monetary system, told EU lawmakers during a hearing in November 2023.
Since last year, EU legislators have been working on the law that will shape the digital version of public money, defining how it can be used. The European Parliament is set to vote on its position for April 22 2024. If lawmakers and member states give the green light, the launch of the digital version of the common currency of the Eurozone is expected as early as 2026.
A rival to bank deposits
So will the digital euro unleash a monetary revolution that will change money, payments and banking as we know it? Non-bank payment providers, such as Stripe, Paypal or Wise, would really like for that to happen.
“A level playing field cannot exist today because payment institutions and e-money institutions cannot access payment systems on an equal footing with banks,” said American payment provider Stripe in a paper submitted to the Commission.
the Commission’s lobbying Transparency Register records not a single meeting with an NGO or consumer organisation on the digital euro
Within the current monetary system, only banking institutions can settle payments in “central bank reserves”, the digital form of central bank money that is exclusively accessible to institutions with a banking licence: If you pay your friend for dinner last night with your BNP Paribas account app to your friend’s ING account, BNP will transfer the corresponding amount of central bank reserves to ING; only banks can do that at the moment.
By giving citizens and non-bank companies direct access to digital central bank money, the EU could break this closed market landscape wide open and stimulate competition and innovation in the financial services sector, according to Stripe.
But this vision is hardly shared by the banking industry it would upend.
Over the past few years, banks have run a quiet, highly effective lobbying campaign to push their potential rival to the margins before its conception. According to documents obtained by Follow the Money, the Commission held around four dozen meetings with the financial industry over the two years leading up to the publication of its draft law mid last year.
“If [the] digital Euro can also be used for tax payments etc and general acceptance is mandated, a significant amount of their clients could do their full finances with the digital Euro and won’t need an account with a commercial bank anymore,” German cooperative bank lobbyists warned the Commission in one of the documents.
Over the same two years, the Commission’s lobbying Transparency Register records not a single meeting with an NGO or consumer organisation on the digital euro.
Banks want a digital euro that would run on existing infrastructure, requiring people to maintain their account with a European bank. They have also proposed severe limits on how much money an individual can keep under the digital euro – an attempt to keep their money at the centre of our payments and savings infrastructure.
What the planned digital euro will look like will soon be determined by European legislators.
With the debate so far raging on away from the public eyes and scrutiny, banks could win the first battle over Europe’s monetary future. Should industry get its way, the digital euro will likely be lobbied to irrelevance.
How banks got the best seats at the table
In response to an access to information request by Follow the Money, the European Central Bank (ECB) released two dozen letters and emails that show how banks and industry associations leveraged their position as a powerplayer. The banks present themselves as a “trusted partner of the ECB for more than 20 years”, according to a letter sent by three bank lobby groups. Their expertise should earn them “regular meetings, at a minimum during crucial stages of the decision making on the side of the ECB”, the document reads.
Their pleas were successful.
“I take note of your suggestion to further intensify the exchanges with the banking industry on the design and distribution of a digital euro,” wrote former ECB executive board member Fabio Panetta, for example, to the German banking lobby group Bundesverband Deutscher Banken in July 2022.
The ECB did not reply specifically how many meetings with bank lobbyists it had had on the digital euro over the past years. The ECB publishes meetings of members of its Executive Board, including President Lagarde, on its website. But while such top-level meetings can be traced, it remains unclear how often the Central Bank’s digital euro project leader Evelien Witlox met with bank lobbyists. The ECB declined to comment on that aspect.
An ECB spokesperson told FTM that “all stakeholders could provide feedback on equal terms”.
Minutes obtained by Follow the Money reveal that the Commission invited only industry players to the most influential lobby setting, high-level closed-door meetings. A Commission spokesperson acknowledged that the EU executive had received a large number of requests from the financial sector, but said the resulting bilateral meetings were “not the main input for our policy”.
The well-coordinated lobby campaign of the banking sector has sparked alarm among consumer advocates.
“It is not in the interest of the banking industry to design a digital euro which is more attractive to consumers than their existing offer,” Anna Martin of BEUC, an umbrella group of 45 consumer organisations across Europe, told Follow the Money. In the consumer organisation’s vision, a digital euro would be free of charge, secure your privacy and you’d be able to pay with it everywhere in the bloc.
The Commission and the ECB were open to listen to voices from outside the financial industry, Martin said – but with financial resources being limited, only a small number of NGOs were able to work on it, she said.
This means that lawmakers who spoke almost exclusively with industry lobbyists about the digital euro risk confusing the position of the banks with the “view of an overwhelming majority of society”, Martin said.
So what exactly did the banks lobby for?
The digital currency could fundamentally change how banks function in society – or that’s at least what Europe’s three largest banking industry groups told the ECB in a letter. If the digital euro became a free means of payments, it would directly compete with bank deposits.
Merchants pay a small fee to the bank on every transaction – and banks are worried they might lose that income. In several letters, lobbyists insist that fees for handling digital euro transactions should not only cover the bank’s cost, but should also cover the potential losses resulting from fewer payments with regular bank money.
The lobbyists fear that an independent public payment infrastructure for the digital euro would further make it harder for banks to earn money. In order to salvage the old business model, the banking groups told the ECB that it should keep its hands off the relationship with customers. Instead, the ECB should issue the digital euro as “raw material”, meaning they should leave it up to the industry to develop the infrastructure that allows you to actually use it for payments, the European Banking Federation wrote in an email to the then-ECB’s board member Fabio Panetta.
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But even if the ECB stays away from directly handling consumer payments with digital euros, the banks would still have to deal with new competitors from outside the banking sector. Fintech app-builders, crypto companies, and established non-bank payment providers like Stripe and PayPal are all anxious to gain market share from the banks, by building their own payment applications for the digital euro.
The banking sector is well aware of this threat.
While promoting the development of new and innovative payment methods on the European market in several letters to the Central Bank, they at the same time strategically tried to protect their exclusive access to the ECB’s settlement system.
The digital euro should only be handed out by intermediaries that have an account at the ECB or one of the countries’ central banks, the European Association of Co-operative Banks told the Commission in their round table discussions.
As only banks meet these requirements, their proposal would effectively prevent all non-bank actors from joining the club.
Just pay, don’t save
As long as there is no viable alternative for consumers and businesses to store their savings in a safe digital form, all individuals and businesses remain forced to keep their money at a commercial bank – or at least part of it – regardless of the interest rates that banks offer. And because they don’t have to compete against non-bank actors, banks can pay much lower interest rates on your deposits than what they pay for the money they borrow elsewhere – a big booster of bank profitability.
The banking industry fears that the digital euro will drain their retail deposits, which represents their “valuable and stable source of funding”, according to a letter sent by the network of financial officers of the 27 largest European banks. This would effectively reduce their funding advantage compared to other financial service providers.
The effort to prevent this from happening goes all the way to the top.
In the letter, sent to the top executives of the ECB and the Commision, the European CFO Network pleads to introduce a maximum of euros that a person can keep in their digital euro account. To make sure the digital euro doesn’t become a “store of value” – a place where they can safely keep their money for a longer period of time – they urge the Commission and ECB to limit the amount to preferably somewhere between 500 to 1,000 euros. In addition to this holding limit, the banks demand that, unlike bank deposits, digital euro accounts shall pay no interest.
The banks’ top executives list a number of reasons in defence of their argument. They say that if their demands are not met, this could “have major unintended consequences for financial stability”. They also make the threat that their increased funding costs will be passed on to borrowers, and could reduce credit provision to society. They argue that this would hurt “vulnerable customers” the most.
According to the bankers this could even “challenge the green transition” by making it more unattractive for banks to invest in sustainability projects and “will severely hamper innovation and reduce competition in the European payment industry”.
But non-bank payment providers don’t buy those arguments.
Stripe, the American financial service provider, wrote in its paper to the Commission that setting the limit to 3,000 euros would mean that fewer people would want to adopt it as a payment method. Low limits would make it hard to use the digital currency as a substitute for a bank account when paying rent, or receiving your salary.
It’s not only the non-bank payment competitors who are critical.
Miguel Fernández Ordóñez, former president of the Spanish Central Bank, warned the Parliament during the hearing last year that the politicians should not “confuse banking stability with financial stability”.
The former member of the ECB-governing council told Follow the Money: “The banking sector deliberately tries to link its own fate to financial stability in a broader sense as a tactic to thwart any innovation of the financial system that would hurt their privileged position.”
How the Commision took sides
So far, it looks like banks are winning the battle. In its proposal, the Commission envisages the euro as a means of payment, not a store of value. The Commission veers off the question how high the holding limit should be and delegates setting holding limits to the ECB.
The draft contains only one sentence on the reasoning behind this choice, echoing the voice of the banking lobby: “An unrestricted use of digital euro as a store of value could endanger financial stability in the euro area, with adverse effects on credit provision to the economy by credit institutions,” the preamble reads.
Several scholars, including those commissioned by the Parliament, have pointed out that the ECB and Commission seem to accept certain arguments of the banking sector for a fact, instead of scrutinising them.
According to Dirk Niepelt, professor of economics at the University of Bern, research doesn’t support the argument that credit provision to society will suffer from the digital euro. “A simplistic balance sheet logic seems to suggest that credit must fall, but research has shown that the opposite could be true as well. We simply don’t know,” Niepelt said.
Going a step further, Christian Hofmann, a professor at the National University of Singapore, challenges the necessity of having a maximum of how much money people can hold in their digital euro wallets for the sake of financial stability altogether.
On the contrary, he argues that “an approach that allows everyone unlimited access to digital euros” would boost competition and ultimately improve financial stability. Even if banks could offer less credit, this might be counterbalanced by non-bank financial institutions being able to offer more.
“Banks would have to compete with this new financial industry,” he said. “The results could be less risk concentration in a few systemically important banks.”
The ECB sides with the banks
Niepelt and Cyril Monnet, another professor of economics at the University of Bern who was also commissioned by the Parliament for a separate study, accuse the ECB of having “an implicit objective – to protect banks and their business model”.
They conclude that “rather than opting for a rethink, the ECB seems to have decided to stick with the status quo.” That’s, they argue in an opinion piece, the same as “sacrificing the digital euro on the altar of banking as we know it”.
Niepelt and Monnets suggestion of an implicit objective has recently become an explicit one. In February 2024,, ECB Executive Board member Piero Cipollone and two other senior staff members cited the protection of banks as the main reason behind the restrictions on the digital euro.
Such limits would “preserve the economic function of commercial banks,” they wrote. “Merchants would be able to receive and process digital euro, but would not be able to hold them at all ‒ protecting the corporate deposit base of the banking system.”
In a footnote to the article, they acknowledge that this watered-down version of the digital euro wouldn’t bring the promised benefits – such as improved financial stability and reduced necessity to rescue banks, for example – which “more radical economists” would like to see from the introduction of the digital euro, the ECB’s version of a Central Bank Digital Currency (CBDC).
“Central banks and legislators (at least in the EU) have not endorsed these views but instead defended the role of banks and have designed CBDCs accordingly,” they wrote without elaborating.
Preparing for a fight
With negotiations ongoing, the future of the digital euro is yet to be determined. Working documents obtained by Follow the Money through a Freedom of Information request suggest that key questions are still under discussion in the Council. Some member states, for instance, have raised concerns about the large discretionary power given the Commission’s proposal gives the ECB. A working document notes that member states “have shown divergent views on this fundamental issue”.
“The digital euro is a complicated file, and we are still at a very early stage of the process within the Council”, a Belgian diplomat, whose country holds the rotating presidency of the Council of the EU, told Follow the Money.
With disagreements raging on over crucial questions, an agreement between EU institutions on the digital euro law before the European elections in June appears out of reach.
The Hungarian Council presidency, which will take over from Belgium in July, is also not expected to make the file a priority – pushing any final decision on the matter well into 2025.
In the Parliament, opinions are equally divided. German lawmaker Stefan Berger, of the centre-right European People’s Party and the lead lawmaker on the file, has proposed 119 textual amendments to the draft law, but left the key elements – such as the limitation of the store of value function and the non-remuneration of the digital currency – intact.
That clashes with the centre-left S&D group. Paul Tang, who leads the work for the group in the committee on economic and monetary affairs, told Follow the Money that his group opposes the limitation of the “store of value-function” as proposed by the Commission.
“We fear that if you cannot save money using digital euros, people will neither use them for payments. These two functions of money go hand in hand,” he said.
According to Tang, holding limits can only be justified for a transition period. Tang describes it as “politically unrealistic” to scrap holding limits immediately, but expects the ECB to support his compromise.
As a precaution to protect the democratic process, S&D has proposed an amendment to the draft law that introduces an ultimate “go, no-go-moment”. This would require the European Parliament to give its approval for the implementation of the digital euro after the ECB presents its final version.
“I do not demand from central bankers to start a revolution, but it is neither their institutional task to prioritise the interest of the banking sector over the public interest,” Tang said. “The introduction of a new form of money should not be a decision that central bankers can take by themselves.”
