The payment system is a critical piece of infrastructure in the same way that energy supplies and communications services are. The introduction of the digital euro will add a payment solution for the whole of the euro area alongside the non-European and regional European payment service providers, and it will make everyday digital settlements easier, increase resilience in the event of a crisis, and create a space for financial innovation.

“Having only one or two service providers dominate all card payments is far from ideal in terms of risk”, said Deputy Governor of Eesti Pank Andrus Alber at a conference on the digital euro held in Vilnius by the Baltic central banks that discussed payment habits in the Baltics and the role of the digital euro. “The digital euro would certainly be able to mitigate that risk”.

The risks are real. Estonia has experienced cyber attacks, GPS jamming, damage to underwater infrastructure, drones entering Estonian airspace, and extreme weather conditions in recent years. “People need to make purchases when any of these situations arises, and the payment system is clearly a critical piece of infrastructure that needs to be strengthened so it can withstand any crisis”, said Mr Alber.

The problem is that the European payment system is highly concentrated, and the large majority of card payment services are currently provided by a limited number of companies based outside the European Union. Estonia is one of the 13 countries that does not have its own local service provider. This did not seem to be a problem until geopolitical tensions made it apparent that excessive dependence on external providers could create a vulnerability to external pressure or coercion, or could lead to critically important services being interrupted. “Dependencies that are not immediately visible must also be considered”, Mr Alber pointed out. “Customers may have multiple accounts with different banks to spread their risks for example, but those banks might all use the same cloud services or electricity supplier. Alternatives and back-up solutions are needed and must be put in place”.

The digital euro that is being developed by the European Central Bank and the central banks of the Eurosystem is primarily an evolution of cash that reflects changes in the payment habits of Europeans and the increasingly common use of digital payments. An important additional benefit is that the digital euro can be used for electronic payments even if there is a power outage or if communications are interrupted. This strengthens the resilience of the payment system of the euro area.

Mr Alber said that this could only happen if the digital euro is widely used in the future and if people are aware of all the options it offers. “The challenge is not the technology, it is people and their habits”, he said. He gave the example of the crisis readiness exercise that Eesti Pank and the commercial banks ran in the spring in which systems still operated during a communications outage, but people were unable to pay because they did not have their physical card or any cash on them.

Asked whether the digital euro might crowd private-sector initiatives out of the market, Mr Alber drew a parallel with the recent football World Cup finals, where the number of teams competing had been enlarged. He said that the future of the digital euro could be seen in the similar way, as the overall value of payments is increasing year by year and the digital euro could create opportunities for new businesses that do not exist today, such as micro-payments or conditional payments.

A final decision about introducing the digital euro has not yet been taken, and will only come after the legislative framework for it has been agreed on. Negotiations between the European Parliament, the member states and the European Commission are expected to be concluded by the end of this year. If they are, the digital euro could enter into circulation in 2029–2030.

The conference on the digital euro was being held by the Baltic central banks for the second time. The first conference was held last September in Tallinn.

Additional information:
Hanna Jürgenson
Eesti Pank
Communications officer
Tel: 56920 930
Press enquiries: [email protected]