Banking lobby’s influence risks undermining digital euro’s potential

Earlier in April, the European Parliament’s Committee on Economic and Monetary Affairs (the ECON Committee) was supposed to be voting on its report on the establishment of the digital euro. 

The Committee report is the first and most important step in shaping the position of the European Parliament on the digital euro, which will then be used to negotiate with the European Council and European Commission on the final text of the law. 

However, the vote mysteriously disappeared from the Committee’s agenda, and inside sources explained that nine months after the publication of the proposal by the Commission, the discussions in the European Parliament have gone nowhere. 

This can be explained by the fact that the digital euro is not so much a technocratic and legislative affair as a highly political debate. 

It’s highly political because it pits the public interest in having access to safe money against the private profit-making interests of banks.

Our public money needs a digital age upgrade

The digital euro is essentially the digital equivalent of cash, which is the safest and most liquid asset that people have access to in the economy today. 

Why? Because it’s public money backed by the state. 

The money in our bank account, however, is private bank money issued and backed by private banks, which can and do go bankrupt, as evidenced by the banking crisis we witnessed last year. 

The reason we trust private bank money is because we trust that the moment we want to withdraw our money from our bank accounts, we can convert our deposits immediately on par into cash. 

We also trust that the state will protect our deposits in case of a banking crisis. The state and public money therefore play a key role in establishing trust in our monetary system.

The public interest in adopting a digital euro is straightforward: we live in an increasingly digital world and we therefore need to upgrade our public money, cash, to the digital age. 

If we don’t do this, then we risk becoming even more reliant on the banking sector to make payments, which, as we know, results in large numbers of people being financially excluded. 

Moreover, it would mean reinforcing a system where banks are so important because they manage the quantity of money and our payment infrastructure, that we need to rescue them with taxpayers’ money every time they get into trouble.

Prioritising the interest of banks over people

The private banks, on the other hand, have every interest in maintaining their oligopolistic market power over digital payments. 

Over the past two years, banks and their interest groups have conducted an extensive and highly effective lobbying campaign aimed at minimising the impact of the digital euro on their business model. 

Their strategy includes securing exclusive meetings with key policymakers, writing letters to the ECB, pushing for a digital euro that uses the existing banking infrastructure, and advocating strict usage limits that effectively undermine the digital euro’s potential.

For example, to prevent the digital euro from becoming a useful store of value and means of payment for larger amounts, the banking lobby proposes to cap the amount of digital euros that people can and exclude interest payments. 

Such restrictions undermine the digital euro’s attractiveness and usability for people. Restricting the functionality of the digital euro would also be detrimental to the European economy. 

It risks stifling competition, hampering innovation and reinforcing an architecture that prioritises the interests of banks over the general public and non-bank payment service providers.

However, to give banks time to adapt and to avoid acute financial stability, such as banks being unable to fulfil their obligations towards depositors, it makes sense to introduce an initial limit on the amount of digital euros people can hold. 

This limit should then be gradually relaxed to increase the usability of the digital euro and foster greater competition.

Consulting with banks only?

As Europe deals with the introduction of the digital euro, the decision-making process must be transparent, inclusive and based on the public interest. To date, the process has been disproportionately influenced by the banking lobby, and negotiations have been stifled by policymakers that side with the banks. 

Recent investigative journalism revealed that in the lead-up to the publication of its proposal for a regulation on the digital euro, the European Commission had around 50 meetings with banks and not a single one with an NGO or a consumer organisation. 

The European Commission’s proposal, while progressive in terms of the intermediaries that can distribute digital euros (going beyond just private banks) and in terms of accessibility, on the whole, gives undue weight to the banks’ narrative. 

For instance, in several articles, it gives primacy to financial stability over the public interest of maintaining access to public money, while these are two equally important considerations.

Similarly, in the European Parliament, German lawmaker Stefan Berger, of the centre-right European People’s Party and the lead lawmaker on the file, has met only with banks and with industry, such as cryptocurrency actors and Amazon, on the digital euro file. 

The banking industry’s influence can clearly be seen in Berger’s 119 amendments to the Commission’s proposal, which proposes leaving it entirely up to banks to decide how many digital euros people can hold. 

Berger’s approach to the digital euro file has also been one of consistent delay. This has frustrated others in the European Parliament who would like to see the file advance before the European elections, and in line with the digital euro’s twin proposal on the legal tender of cash, which is intended to ensure continued access to and acceptance of physical cash across Europe.

The banking lobby shouldn’t have a say

The influence of the banking lobby on policymakers risks undermining the digital euro’s potential. 

Lawmakers as representatives of the people should resist the anticompetitive proposals of the banking sector and embrace a vision of the digital euro that serves the collective interests of Europeans. 

This means that the digital euro must be attractive, accessible and beneficial to all. 

The deliberation process must be free from the disproportionate influence of an industry that has much to lose from a level playing field for payment services and financial intermediation.

Dr Martijn van der Linden is Professor of Practice in New Finance at The Hague University of Applied Sciences, and Vicky Van Eyck is Director at Positive Money Europe.

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