Explanatory Memorandum to COM(2023)369 - Establishment of the digital euro - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2023)369 - Establishment of the digital euro. |
|---|---|
| source | COM(2023)369 |
| date | 28-06-2023 |
1. CONTEXT OF THE PROPOSAL
• Reasons for and objectives of the proposal
Digitalisation and new technologies are increasingly shaping European people’s lives and the European economy. With the European economy becoming more and more digital, Europeans also increasingly use private digital means of payment to transact.
Banknotes and coins - which are the only current forms of central bank money with legal tender available to the general public (including people, public authorities and businesses) – alone cannot support the EU’s economy in the digital age. Their use in payments therefore diminishes as online purchases increase and payment habits of the general public shift towards the large variety of private digital means of payment offered in the EU. This puts at stake the desirable balance between central bank money and private digital means of payment. This trend could even be reinforced in the future, with the emergence of third country central bank digital currencies (CBDC) and stablecoins1 issued by private firms, which could challenge the role of the euro in payments, in the EU and outside.
The lack of a widely available and usable form of central bank money technologically adapted to the digital age could also diminish trust towards commercial bank money, and ultimately towards the euro itself. Trust towards commercial bank money relies on the possibility of depositors to convert at par their deposits into central bank money with legal tender, which currently is only available in the form of cash. Lacking a form of a central bank money that can be used in the digital economy and is convertible at par with commercial bank deposits may undermine the monetary anchor role of central bank money, weakening financial stability and monetary sovereignty in the EU.
In this context, over recent years, the issuance of a retail CBDC has gained significant attention and traction.2 Like cash, a retail CBDC would be an official form of central bank money directly accessible to the general public, endowed with the status of legal tender. It would thus adapt the official forms of the currency to technological development, complementing cash.
In the euro area, the establishment of a retail CBDC – the digital euro – is necessary to supplement cash and adapt the official forms of the currency to technological developments, so that the euro can be used as a single currency, in a uniform and effective manner across the euro area. The digital euro will also be offered as a public digital means of payment, alongside the existing private digital means of payment, supporting a stronger and more competitive, efficient and innovative European retail payments market and digital finance sector, and contributing to further enhance the resilience of the European retail payments market as well. As such, the digital euro will facilitate the development of pan-European and interoperable retail payment solutions, including the full roll-out of instant payments.
The objective of this proposal is to ensure that central bank money with the status of legal tender remains available to the general public, while offering a state-of-the-art and cost-efficient payment means, ensuring a high level of privacy in digital payments, maintaining financial stability and promoting accessibility and financial inclusion. For this purpose, the proposal establishes the digital euro that may be issued by the European Central Bank and national central banks of the Member States whose currency is the euro, as part of the Eurosystem, and provides the necessary regulatory framework that should ensure the effective use of the digital euro as a single currency throughout the euro area, meeting users’ needs in the digital age and fostering competition, efficiency, innovation and resilience in the EU’s digitalizing economy. The digital euro would not be programmable money and could therefore not be used to limits its spending to or direct it at specific goods or services: as a digital form of the single currency, it should be fully fungible.
• Consistency with existing policy provisions in the policy area
Other than the relevant provisions of the Treaties (Article 3(1)(c) TFEU and Articles 127 to 133 TFEU), the Commission Recommendation of 22 March 2010 on the scope and effects of legal tender of euro banknotes and coins,3 and the proposal for a Regulation of the European Parliament and of the Council on the scope and effects of, and access to the legal tender of euro banknotes and coins (adopted alongside the present proposal),4 there are no policy provisions in the relevant policy area, i.e. monetary law as part of the monetary policy of the euro area.
The present proposal is consistent with those provisions of primary law. In order to ensure coherence between the two forms of central bank money (digital euro and euro cash), the legal tender of cash will also be regulated in a consistent manner with the legal tender of the digital euro, without prejudice to the differences between these forms of the euro.
This proposal builds on the internal market freedom to provide payment services, wherever the payment service provider is incorporated. To ensure that all EU payment services providers may distribute the digital euro across the euro area, this initiative is accompanied by a proposal for a Regulation [please insert reference – proposal for a Regulation on the provision of digital euro services by payment services providers incorporated in Member States whose currency is not the euro - COM/2023/368 final].
• Consistency with other Union policies
The Digital Finance and Retail Payment Strategies5 of the Commission adopted in September 2020 supported the emergence of competitive pan-European payment solutions and the exploration of a digital euro as a possible complement to euro cash, to be offered alongside private digital means of payment.
The introduction of the digital euro would be instrumental in the context of ongoing efforts to reduce the fragmentation of the European retail payments market, to promote competition, efficiency, innovation, and resilience in this market, and to encourage industry initiatives to offer pan-European payment services, supporting in particular the full roll-out of instant payments.
The digital euro will support key policies pursued by the Union, in particular the protection of personal data, accessibility and financial inclusion.
- This initiative supports the objective of ensuring a high level of privacy in payments is in line with Union data protection laws: in particular, Regulation (EU) 2016/679 (GDPR)6 and Regulation (EU) 2018/1715 (EUDPR)7 will apply to distribution and use of a digital euro when personal data is processed. The digital euro will be designed so as to minimise the processing of personal data by payment services providers and by the European Central Bank to what is necessary to ensure the proper functioning of the digital euro. The digital euro will be available offline, with a level of privacy vis a vis payment service providers which is comparable to withdrawals of banknotes at automatic teller machines and to the use of cash. The settlement of digital Euro transactions will be designed in such a way that neither the European Central Bank nor national central banks can attribute data to an identified or identifiable digital euro user.
- In addition, to ensure consistency with Directive (EU) 2019/882 (European Accessibility Act)8, the digital euro will be designed in a way that maximises its foreseeable use by persons with disabilities, functional limitations or limited digital skills, and older people.
- In terms of financial inclusion, the initiative is inspired by the approach adopted under Directive (EU) 2014/92 (Payment Accounts Directive)9, which aims at ensuring a universal access to payment accounts with basic features for all consumers, including financially excluded persons. The digital euro will be offered following a similar approach, but with the required adaptations, to ensure universal access to basic digital euro payment services. First, all credit institutions providing payment account services would be required to provide basic digital euro payment services upon request of their clients. Second, for consumers that are not clients of credit institutions, Chapter IV of the Payment Account Directive on access to payment account with basic feature would apply in relation to the access to digital euro account with basic services, with basic digital euro services offered for free to natural persons. Third, this initiative ensures that public entities (local or regional authorities or postal offices) should also distribute the digital euro to natural persons that do not wish to open a digital euro account at credit institutions or other payment services providers. Furthermore, this initiative entrusts the European Banking Authority and the Anti-Money Laundering Authority to jointly develop guidelines specifying the relationships between AML/CFT requirements and access to basic digital euro payment services.
- Directive (EU) 2015/2366 (PSD2)10 regulates the provision of payment services by payment service providers (including credit institutions, electronic money institutions and payment institutions) and the rights and obligations of the parties involved in a payment transaction. The Commission has proposed a new legislative package consisting of both a new Directive on payment services in the internal market and a Regulation adopted on 28 June 202311. This package extends the definition of funds to include all forms of central bank money issued for retail use (banknotes, coins and central bank digital currency). On 22 October 2022, the Commission adopted a legislative proposal to make instant payments in euro, available to all citizens and businesses holding a bank account in the EU and in EEA countries.
- By respecting a risk-based approach that underpins the Union AML framework and by excluding full anonymity, the initiative is consistent with the objectives of the AML package12 adopted by the Commission in July 2021. At the same time, the initiative provides for a high level of privacy for offline digital euro payments, which are cash-like proximity payments. Online digital euro payment transactions would follow the same data protection, privacy and AML/CFT rules as for private digital means of payment, in conformity with the EU AML/CFT framework and PSD2, consistent with the GDPR and the Commission’s open data strategy.
- The EU-wide interoperable European Digital Identity Wallet13 allows users, on a voluntary basis, to on-board and perform strong customer authentication when making payments, as required by Article 97 of the PSD2. The same functionalities should be offered to digital euro users.
The digital euro has also been identified as an element of the Commission strategy to support the EU’s open strategic autonomy. In particular, the proposal is consistent with the Commission Communication “Towards a stronger international role of the euro”14 and the Commission Communication “The European economic and financial system: fostering openness, strength and resilience”15.
The Digital Markets Act Regulation16 (“DMA”) adopted in September 2022 aims at improving contestability of markets in the digital sector. To this end, it imposes a number of obligations on the undertakings that are designated gatekeepers for enumerated core platform services by the European Commission, with the objective of promoting user choice and providing for opportunities for business users. While gatekeepers remain subject to the specific provisions of the DMA, with the introduction of the digital euro, which will be available for offline payments, effective interoperability and fair, reasonable and non-discriminatory access to hardware and software components of mobile devices would be needed to ensure the availability of the service for digital euro users in the internal market.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
As a new form of central bank money available to the general public, alongside euro banknotes and coins, the digital euro shall be established and regulated by an EU Regulation based on Article 133 TFEU. Pursuant to Article 133 TFEU, “[w]ithout prejudice to the powers of the European Central Bank, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall lay down the measures necessary for the use of the euro as a single currency. Such measures shall be adopted after consultation of the European Central Bank”.
As has been explained above and will be developed in section 3, the establishment and regulation of the digital euro is a measure that is necessary to ensure the use of the euro as a single currency in the digital age. This Regulation needs to make sure that the digital euro can be used in the same way, in accordance with the same rules and conditions, and without fragmentation, throughout the euro area.
• Subsidiarity (for non-exclusive competence)
In accordance with Article 5(3) TEU, the principle of subsidiarity does not apply in areas which fall within the Union’s exclusive competence. In accordance with Article 3(1) TFEU, the Union has an exclusive competence in the area of monetary policy for the Member States whose currency is the euro. In this area, action by the euro area Member States is not possible and the principle of subsidiarity thus does not apply.
• Proportionality
Respect for the principle of proportionality has been examined in detail in the impact assessment accompanying the proposal and all the proposed options have been assessed against this objective.
In particular, microenterprises which do not accept electronic means of payments, non-profit legal entity and individuals who do not act in the course of a commercial activity, will be exempted from the obligation to accept payments in digital euro.
In terms of distribution of the digital euro, while all payment services providers may distribute the digital euro, only credit institutions that operate payment accounts would be required to distribute the digital euro account upon request of their clients. Requiring all payment services providers to distribute the digital euro would not have been proportionate to the objective of ensuring an effective use of the digital euro as a legal tender means of payment.
• Choice of the instrument
A Regulation is the appropriate instrument to contribute to the creation of a single rulebook, having general application and being binding in its entirety and directly applicable in all the Member States of the euro area, thus removing the possibility of differences in application in the different Member States, and ensuring the objective of the use of the euro as a single currency, as provided for by Article 133 TFEU.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
• Stakeholder consultations
On 2 October 2020, the European Central Bank published a “Report on a digital euro”, which explored benefits and challenges of issuing a digital euro, and possible design options, with the objective to seek for wider views on these aspects from the general public. Following the release of the report, the European Central Bank launched a “Public consultation on a digital euro” on 12 October 2020, which ran until 12 January 2021. The consultation included 18 questions aimed at collecting the views of individuals and professionals. The first part was aimed mainly at individuals in their role as retail payment users, while the second part targeted primarily financial, payment and technology professionals with specific knowledge in the economics, regulation and technology of (retail) payments. Respondents were nevertheless invited to provide feedback on the full set of questions. Privacy was considered the most important feature of a digital euro by both citizens and professionals participating in the consultation. The European Central Bank later commissioned additional surveys on digital means of payment and wallets used by consumers.
The Commission’s consultation strategy supporting this proposal builds on several initiatives:
- The Commission launched a call for evidence and a targeted consultation on a digital euro on 5 April 2022, until 16 June 2022. The targeted consultation complemented the ECB’s public consultation with further information gathered from industry specialists, payment service providers (including credit institutions, payment and e-money institutions), payment infrastructure providers, developers of payment solutions, merchants, merchant associations, retail payments regulators, and supervisors, anti-money laundering (AML) supervisors, financial intelligence units, the European Data Protection Board and other relevant authorities and experts as well as consumer organisations, in order to feed in the impact assessment prepared by the Commission with a view to its proposal for a regulation on the digital euro. The main findings of the targeted consultations are the followings: EU citizens agreed with the objective of providing access to public money in digital form for everyone including for the unbanked people. Professional respondents believed that the digital euro may bring benefit to businesses/merchants in all payment situations. People favoured fast, private, cost free and widely available digital euro. Most professional respondents considered wide availability and easy onboarding, easy to use, ability to pay anytime, anywhere to anyone and instant settlement as the most important aspects to be offered to the general public. A widely available digital euro was believed to support the EU’s open strategic autonomy. Most professional respondents supported granting the digital euro a legal tender status. Most respondents supported a digital euro available mainly for citizens residing and businesses established in the euro area and for intra euro area transactions.
- Experts from Member States and National Central Banks, as well as representatives from the European Central Bank had the opportunity to give their views in the context of the Expert Group on Banking, Payment and Insurance (EGBPI) set up by the Commission between September 2022 and February 2023. The discussions were supported by targeted consultations addressed to countries. Member States also expressed their views as part of the Euro Group meetings as of 2021. While Member States’ experts only had preliminary views at EGBPI meetings, most of them supported the potential issuance of a digital euro that would be granted legal tender status in the euro area.
- On 7 November 2022, the Commission organised a high-level conference, bringing together representatives from national and EU authorities, Members of the European Parliament, private sector and civil society representatives and academia.
- The Commission organised roundtables with representatives of merchants/businesses, consumers and payment service providers in February and March 2023.
- The Commission participated in a European Parliament’s Plenary debate in April 2023 and in policy debates organised by the European Parliament Economic and Monetary Committee in January 2023 and in March 2023.
Since January 2021, the European Central Bank and the European Commission services have been jointly reviewing at technical level a broad range of policy, legal and technical questions emerging from a possible introduction of the digital euro, taking into account their respective mandates and independence as provided for in the Treaties.
• Collection and use of expertise
Contents
A number of inputs and sources of expertise were used in preparing this initiative, including the following:
- Evidence supplied through the various consultations listed above;
- Focus group analyses conducted by the ECB in 2021, 2022 and 2023;
- Study on New Digital Payment Methods, Kantar Report March 2022;
- Participation of Commission services, as observer, in the ECB Market Advisory Group on the digital euro and in the European Retail Payments Board;
- ECB working papers, staff working documents, surveys and statistics;
- Commission and Joint Research Center (JRC) simulations and research.
• Impact assessment
This proposal is accompanied by an impact assessment. The impact assessment report was first submitted to the Regulatory Scrutiny Board (RSB) on 14 October 2022. The RSB examined the impact assessment on 16 November 2022 and gave a negative opinion on 18 November 2022. The impact assessment report was resubmitted to the RSB on 23 March 2023 and the RSB gave a positive opinion on 25 April 2023. The RSB issued two opinions on the report. The first opinion requested improvements in terms of problem definition and specific objectives and asked for a more consistent intervention logic. The RSB also asked for more explanations about the functioning and the impacts of some essential requirements and design features of the digital euro, including on limits of its store of value, the regulation of merchant fees, cybersecurity risks as well as wider security considerations. The second opinion asked for more assessment on the potential benefits and costs in relation to merchant fees and more analyses on the expected impact of the preferred options on the existing market and market actors. The final impact assessment report took on board the comments of the RSB and improved the analyses and descriptions accordingly.
The impact assessment considers that the key problem and the main reason for the necessity of creating the digital euro is that central bank money in physical form i.e. cash alone is not sufficient in the digital age to support the European economy.
- In a rapidly digitalizing economy, central bank money in physical form i.e. cash is not available for payments in a growing part of the economy, in particular e-commerce, and cannot meet the future needs of industry 4.0 (e.g. machine-to-machine payments, conditional payments);
- Third country CBDCs and other innovative means of payment (i.e. stablecoins) not denominated in euro may gradually gain market share in the euro area’s payment markets and reduce the role of the euro.
Several options were considered for regulating the essential elements of a digital euro. The options examined how the digital euro could be regulated to achieve the policy objectives while balancing key trade-offs: (i) enabling wide usage while ensuring fair competition with private payment solutions, (ii) protecting privacy while ensuring traceability, (iii) ensuring wide usage while protecting financial stability and credit provision and (iv) supporting international use while mitigating risks for non-euro countries and the Eurosystem.
- Providing legal tender status to the digital euro with an obligation for all payees to accept it, though with justified and proportional exceptions, and distribution arrangements. To ensure coherence between all forms of central bank money, it is furthermore suggested to regulate the legal tender status of cash in a parallel legislative proposal;
- The ECB should publish the level of maximum fees and inter-PSP fees;
- Providing for a high level of privacy and data protection for low-value offline proximity payments by processing personal data related to users’ identity at the moment of opening digital euro payment accounts with payment service providers but not disclosing transaction data to payment service providers, while online payments would be treated like private digital means of payment, consistent with current AML/CFT requirements;
- Reducing the risks posed by financial disintermediation and the risk to financial stability by allowing the European Central Bank to define and implement tools in order to keep the digital euro’s store of value function within reasonable bounds;
- Making the digital euro first available for natural and legal persons residing or established in the euro area and visitors, but possibly expand its use at a later stage to non-euro area Member States and third countries, subject to agreements and/or arrangements, so as to mitigate risks to financial stability and monetary sovereignty.
This combination of options would bring several benefits that justify the necessity of introducing the digital euro to ensure the continued use of the euro as a single currency in the digital age.17 The general public could benefit from a broader choice as they could use central bank money with legal tender throughout the euro area, in addition to digital means of payments based on commercial bank money. The general public would also benefit from the enhanced trust in the monetary system that is provided by a digital monetary anchor. An easy-to-use and widely available digital euro would also support further financial inclusion in a digitalised society. Merchants would equally enjoy an increased choice for receiving payments and benefit from more competition in the pan-European payment market leading to more efficiency.
Payment services providers would distribute the digital euro to their customers and in addition could generate fees on additional innovative services linked to the digital euro and other services.
Moreover, a digital euro would support open strategic autonomy by creating a new payment scheme that would be resilient against potential external disruptions. A digital euro could also support European businesses for future use cases in industry 4.0 and web 3 (i.e. decentralised internet) by giving them a public alternative to programmable payments potentially offered by CBDCs of foreign countries and stablecoins from technology companies. The implementation costs of the initiative would mainly fall on the European Central Bank, merchants and PSPs. For proportionality reasons, the preferred option foresees exceptions to the mandatory acceptance for some categories of merchants on the understanding that merchants accepting private electronic means of payment would have to also accept digital euro payments. There might be also some learning costs for consumers, similarly to the learning costs associated with online banking or new apps. The initiative would also trigger some operating (recurrent) costs. People could use basic digital euro payment services for free and pay fees for additional digital euro payment services, which are also expected to be set competitively as compared to existing payment means. The introduction of the digital euro is expected to have an impact on both the EU's retail payment market and deposits. On one hand, the digital euro could reduce the market share of existing private electronic means of payments, resulting in lower revenues for certain PSPs. On the other hand, the distribution of the digital euro would also mean revenue for both distribution and acquiring PSPs. Furthermore, the potential conversion of funds placed in PSPs (especially credit institutions) to digital euro can reduce the PSP’s liquidity situation, interest income and may affect credit provision.
Since the online digital euro would likely use similar infrastructure as currently available payment means, the energy consumption and thus environmental impact is expected to be similar to existing payments. In terms of social impact, the digital euro would improve financial inclusion by ensuring access to the digital euro payment services to unbanked people in a context where cash becomes less and less useable in a digitalised economy.
Overall, the assessment concludes that the long-term benefits of a well-designed digital euro with appropriate safeguards outweigh its costs. What is more, the costs of no action can potentially be very large.
• Regulatory fitness and simplification
The present initiative is not a REFIT initiative. It concerns a new form of central bank money with legal tender available to the general public, alongside the euro banknotes and coins that shall be created and regulated in its essential aspects by a new EU Regulation based on Article 133 TFEU. Hence, it is not based on an evaluation of any existing Regulation.
The digital euro initiative will be largely neutral from a one-in one-out perspective. There is currently no framework for a digital euro in place, hence there are no existing administrative costs that could be saved in this area.
While the initiative will involve adjustment costs, which would be kept to a minimum and compensated by benefits, it does not impose any new and significant administrative costs, i.e. specific labelling, reporting or registration requirements, which would need to be offset by cost savings elsewhere.
• Fundamental rights
The initiative fully respects the fundamental rights enshrined in the Charter of Fundamental Rights of the European Union. It also duly respects the right to liberty (Article 6 of the Charter), the freedom to conduct a business (Article 16 of the Charter), the right to property (Article 17 of the Charter), the rights of the elderly (Article 25 of the Charter), the integration of persons with disabilities (Article 26 of the Charter), and a high level of consumer protection (Article 38 of the Charter).
The processing of personal data may be required to fulfil tasks that are essential to the use and distribution of a digital euro. This will have an impact on the fundamental rights to private life and the protection of personal data provided in Articles 7 and 8 of the Charter. Any limitation on the protection of personal data and privacy applies only in so far as it is strictly necessary, in accordance with Article 52 of the Charter. More specifically, the processing of personal data is required only for the tasks related to the distribution and use of the digital euro laid down in this regulation as well as for existing tasks carried out in the public interest or for compliance with a legal obligation established in Union law that apply to funds as defined in Directive (EU) 2015/2366. Such tasks include the prevention and detection of fraud, combatting money laundering and terrorist financing the fulfilment of obligations related to taxation and tax avoidance, and the management of operational and security risks. This proposal ensures that processing activities respect the requirements of Union data protection law by establishing the respective responsibilities of a controller from a data protection perspective, notably those of the European Central Bank and national central banks and PSPs. Where the European Central Bank and national central banks determine the means of processing as a controller, state-of-the-art security and privacy-preserving measures will ensure that personal data is pseudonymised or encrypted in a manner where personal data processed cannot be directly attributed to an identified or identifiable digital euro user. The proposal further lays down a procedure to verify whether any of PSPs’ customers are designated persons or entities subject to EU sanctions. It establishes clear rules concerning the frequency of and responsibility for such verifications. The initiative ensures that any personal data to carry out such verifications are adequate, relevant and limited to what is necessary.
4. BUDGETARY IMPLICATIONS
This Regulation has no budgetary implications.
5. OTHER ELEMENTS
• Implementation plans and monitoring, evaluation and reporting arrangements
The objective of ensuring that the central bank issued money, the digital euro, can support the EU by meeting the payment needs in the digital age can be monitored on an ongoing basis based on data from the payment service providers, merchants and the ECB. The amount of digital euro in circulation, as well as the total number and value of retail payments in digital euro, and their relative share as compared to other payment means could be the main indicators in monitoring the use of digital euro in the digitalized economy of the EU.
There will only be limited new reporting requirements for payment service providers.
The proposal includes a general plan for monitoring and evaluating the impact on the specific objectives, requiring the Commission to carry out a first review three years after the date of application of the Regulation (and every three years thereafter), and to report to the European Parliament and the Council on its main findings. The review is to be conducted in line with the Commission’s Better Regulation Guidelines.
• Detailed explanation of the specific provisions of the proposal
Subject matter, establishment and issuance of the digital euro (Articles 1 to 4)
The purpose of this Regulation is to establish the digital euro and regulate its essential aspects to ensure the use of the euro as a single currency across the euro-area. The digital euro is available to natural and legal persons for the purpose of retail payments. The responsibility for authorising the issuance of the digital euro by the European central bank or the national central banks of the euro area Member States lies with the European Central Bank.
Applicable law and competent authorities (Articles 5 and 6)
Article 5 clarifies that Directive (EU) 2015/2366 of the European Parliament and of the Council, of 25 November 2015, on payment services in the internal market, as amended by Directive (EU) [please insert reference - proposal for a Directive of the European Parliament and of the Council on payment services and electronic money services in the internal market amending Directive 98/26/EC and repealing Directives 2015/2366/EU and 2009/110/EC - COM(2023) 366 final] applies to the digital euro. That Directive extends the definition of funds to central bank money issued for retail use, which includes central bank digital currencies.
Likewise, Regulation (EU) 2021/1230 of the European Parliament and of the Council of 14 July 2021 on cross-border payments in the Union, as amended by Regulation (EU) of the European Parliament and the Council, [please insert reference – proposal for a Regulation on the provision of digital euro services by payment services providers incorporated in Member States whose currency is not the euro - COM/2023/368 final], Directive (EU) 2015/849 of the European Parliament and of the Council, of 20 May 2015, on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (with the exception of offline payments), as replaced by [please insert reference – proposal for a Regulation for Anti-Money Laundering Regulation – COM/2021/421 final) and proposal for a Directive for Anti-Money Laundering - COM/2021/423] and the Regulation (EU) 2015/847 of the European Parliament and of the Council of 20 May 2015 on information accompanying transfers of funds apply to the digital euro.
While competent authorities under Directive 2015/2366 and Directive 2015/849 would be responsible for supervising and enforcing any obligations laid down in these Union Acts, based on Article 114 TFEU, the same competent authorities would also be responsible for ensuring respect of the relevant provisions of this Regulation.
Supervisory arrangements between the competent authorities of the home Member State and the competent authorities of the host Member States laid down under Directive 2015/2366 and Directive 2015/849 should also apply with respect to the digital euro.
In addition, Member States should designate competent authorities to monitor and enforce the legal tender obligations under this Regulation.
This Regulation only governs the supervision by competent authorities and sanction regimes concerning payment services providers incorporated in Member States whose currency is the euro. Payment services providers incorporated in Member States whose currency is not euro may distribute the digital euro, subject to the supervision and sanction regimes of Member States whose currency is not the euro. For this purpose, this Regulation is accompanied by a legislative proposal based on Article 114 TFEU.
Legal tender (Articles 7 to 12)
The digital euro is granted legal tender status which entails inter alia its mandatory acceptance by payees (Article 7), unless otherwise provided in the Regulation. Article 9 defines a set of exceptions to the obligation to accept the digital euro. This set of exceptions includes the right for a microenterprise not to accept the digital euro, unless it accepts comparable digital means of payment. Similarly, a natural person acting in the course of a purely personal activity is not obliged to accept the digital euro. The obligation to accept the digital euro fully respects the contractual freedom of parties, as a payee will furthermore not be required to accept digital euro payments if both the payee and the payer have expressly agreed on a different means of payment prior to the payment. Nevertheless, payees will be prohibited to use contractual terms that have not been individually negotiated (Article 10) as this would result in undermining the mandatory acceptance by payees and the contractual freedom of payers. Article 11 further recognises additional exceptions to the digital euro of a monetary law nature that the Commission is empowered to adopt by means of a delegated act. The power of the Commission to adopt delegated acts applies without prejudice to the possibility for Member States to adopt national legislation introducing exceptions to the mandatory acceptance deriving from the legal tender status in accordance with the conditions laid down by the Court of Justice in joined cases C-422/19 and C-423/19. Article 12 requires the convertibility of digital euro and euro cash into each other at par. For the avoidance of doubt, Article 12 also gives the payer the right to choose to pay in digital euro or cash in those situations where mandatory acceptance of both applies in accordance with this Regulation, including notably those provisions affecting mandatory acceptance (i.e. Articles 7, 8, 9, 10 and 11), as well as with the Regulation on the legal tender of euro banknotes and coins.
Distribution (Articles 13 to 14)
In accordance with the authorisation they have been granted to provide payment services under Directive 2015/2366, all payment services providers (PSPs) authorised in the EU may provide digital euro payment services, including additional digital euro payment services, in addition to basic digital euro payment services. Payment service providers do not need an additional authorisation from their competent authorities to provide digital euro payment services. For the purpose of distributing the digital euro, payment service providers need to enter into a contractual relationship with digital euro users. A contractual relationship between digital euro users and the European Central Bank is excluded. Digital euro users may have one or several digital euro payment accounts, held at the same or at a different payment service provider.
The provision of digital euro services by PSPs is limited to (i) natural or legal persons residing or established in the Member States whose currency is the euro, (ii) natural or legal persons who opened a digital euro account at the time they resided or were established in the Member States whose currency is the euro, but no longer reside or are established in such Member States, (iii) visitors, (iv) natural or legal persons residing or established in Member States whose currency is not the euro, subject to the conditions laid down in Article 18, and (v) natural or legal persons residing or established in third countries, including territories under a monetary agreement with the European Union, subject to the conditions laid down in Articles 19 and 20. PSPs authorised outside the euro area may provide those services by means of free establishment or free provisions of services under Directive 2015/2366.
Article 13 further lays down specific tasks that a PSP shall carry out for the euro to be used a single currency across the Union. This includes making available funding and defunding functionalities and enabling digital euro users to have their digital euro holdings in excess of any limitations the ECB may adopt (e.g. holding limits) automatically defunded to a non-digital euro payment account such as a commercial bank account when a digital euro payment transaction is received (“waterfall approach”). This also includes enabling digital users to make a digital euro payment transaction where the transaction amount exceeds their digital euro holdings (“reverse waterfall approach”).
Article 14 requires credit institutions that operate a payment account to distribute all the set of basic digital euro payment services to natural persons residing in the Member States whose currency is the euro, upon request of their clients. For natural persons that do not have a non-digital euro payment account at a credit institution or do not wish to open a digital euro payment account at a credit institution or at other payment services providers distributing the digital euro, Member States should designate specific entities (i.e. local or regional authorities or postal offices) that would be required to provide the basic digital euro payment services. In addition, the right of access to payment accounts with basic features under Directive (EU) 2014/92 (Payment Account Directive) should apply in relation to basic digital euro payment services with digital euro basic services provided for free as opposed to “free or reasonable fees” under Article 18 of the Payment Account Directive. Distribution of the digital euro by other payment services providers would be at the payment services providers’ own initiative. All payment services providers that are required to provide digital euro basic services under Article 14 should provide digital inclusion support to persons with disabilities, functional limitations or limited digital skills, and elderly people.
Limits to the use of the digital euro as a store of value (Article 16)
The European Central Bank should develop instruments to limit the use of the digital euro as a store of value, including holding limits. Article 16 defines a set of criteria that the parameters and use of the instruments developed by the European Central Bank should meet with the view of safeguarding financial stability. In particular, these instruments should not prevent accepting and initiating a digital euro payment transaction. Subject to the criteria specified under Article 16, the decision on whether and when to use such instruments, as well as their calibration, should rest entirely with the European Central Bank. Within the framework of this Regulation, the digital euro should not bear interest.
Fees on digital euro payment services (Article 17)
Merchant service charge or inter-PSP fee are regulated to ensure that they do not exceed the lowest of the following amounts: (i) the relevant costs incurred by payment services providers, including a reasonable margin of profit and that (ii) fees or charges requested for comparable means of payment. For this purpose, the European Central Bank should regularly monitor the relevant costs, fees and charges and publish and revise periodically those amounts. Competent authorities designated by Member States would be responsible for ensuring compliance with this Article.
Access to and use of the digital euro outside the euro area (Articles 18 to 21)
Chapter V lays down rules governing the access to and the use of the digital euro outside the euro area, which depend on whether natural and legal persons reside or are established in a non-euro area Member States or in a third country. Access to and use of the digital euro in a non-euro area Member State is possible, subject to two conditions: (1) the non-euro area Member State makes a request in this direction and commits to a number of conditions; (2) the European Central Bank and the non-euro area national central bank enter into an arrangement that specifies the necessary implementing measures. Access to and use of the digital euro in a third country is also possible, subject to two conditions as well: (1) the Union and the third country conclude an international agreement, and the third country commits to a number of conditions; (2) the European Central Bank and the non-euro area national central bank enter into an arrangement that specifies the necessary implementing measures. In particular, access to and use of the digital euro in a territory under a monetary agreement with the Union is possible, subject to the monetary agreement provides for it. Chapter V also lays down rules on cross-currency payments between the digital euro and local currencies, which should be subject to a prior arrangement between the European Central Bank and the non-euro area national Central Banks.
Technical features (Articles 22 to 24)
The digital euro should be designed in a way that facilitates its use by the general public, including financially excluded persons or persons at risk of financial inclusion, persons with disabilities, functional limitations or limited digital skills, and older persons.
Digital euro users will not be required to have a non-digital euro payment account. Some functionalities of the digital euro require nevertheless a non-digital euro payment account. In particular, digital euro users may designate one non-digital euro payment account to be linked with the digital euro payment account to use waterfall and reverse waterfall functionalities for online digital euro payment transactions.
The digital euro should be available for digital euro payment transactions both offline and online as of the first issuance of the digital euro and should allow for conditional payment transactions. The digital euro should not be programmable money, which means units that, due to intrinsically defined spending conditions, can only be used for buying specific types of goods or services, or are subject to time limits after which they are no longer usable: as a digital form of the single currency, the digital euro should be fully fungible.
Modalities of distribution (Articles 25 to 33)
Users may use the European Digital Identity Wallets established under Regulation [please insert reference – proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 910/2014 as regards establishing a framework for a European Digital Identity – COM(2021) 281 final] to onboard and make payments.
The European Central Bank should ensure that the digital euro is, to the extent possible, compatible with private digital payment solutions to enable synergies between the digital euro and private digital payment solutions, including with shared infrastructures and terminals at the point of interaction.
The European Central Bank should provide support for the processing of disputes, including technical and fraud disputes, related to the digital euro, at euro area level. The European Central Bank should not act as a party in any of these disputes. The European Central Bank may decide to confer the task of developing and managing a dispute mechanism function, as well as a fraud prevention function, upon providers of support services.
While the European Central Bank may provide as front-end an interface between digital euro users and the payment infrastructures of payment service providers, payment service providers may develop their proprietary front-end services. The digital euro users should have the choice between the different solutions available.
The digital euro should enable digital users to switch their digital euro payment accounts to another PSP at the request of the digital euro user. In exceptional circumstances, including when a PSP has lost the relevant data, the European Central Bank may support the switching of the digital payment account to another PSP designated by the digital euro user.
Privacy and data protection (Articles 34 to 36)
Article 35 precisely defines the tasks for which the ECB and national central banks may process personal data, which includes the settlement of digital euro payment transactions. Personal data processing should build on the use of state-of-the-art security and privacy-preserving measures, such as pseudonymisation or encryption, to ensure that data is not directly attributed to an identified digital euro user by the ECB and national central banks. The Commission is empowered to adopt delegated acts on the categories of personal data processed payment services providers, the ECB and national central banks and providers of support services.
Anti-Money Laundering & Counter-terrorist financing framework (Articles 37)
Article 37 provides for an adjusted anti-money laundering and counter-financing framework for offline digital euro payment transactions that will have a higher level of privacy than online payments. For offline digital euro payments, the European Central Bank, the national central banks and payment services providers will not gain access to personal transaction data. Payment service providers will only access funding and defunding data related inter alia to the identity of the user and the amount funded and defunded, similar to personal data processed by PSPs when users deposit or withdraw cash. PSPs should transmit these funding and defunding data, upon request, to Financial Intelligence Units and other competent authorities when users are suspected of money laundering or terrorist financing. The Commission is empowered to adopt implementing acts to set holding and transaction limits.
Final provisions (Articles 38 to 42)
The European Central Bank will report on the digital euro as part of its regular reporting obligations. Furthermore, it will specifically report to the Parliament, to the Council and to the European Commission on the instruments to limit the use of the digital euro as a store of value as well as their parameters, in relation to the objective to safeguard financial stability, no later than 6 months before the planned issuance of the digital euro, and at regular intervals afterwards. The Commission should also report on the impact of the parameters and the use of the instruments in particular on the role of financial intermediaries in the financing of the economy.
This Regulation should enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. Once this Regulation is agreed by the European Parliament and the Council, the European Central Bank will decide when and for which amount the digital euro should be issued, pursuant to Article 4 of this Regulation.