The digital euro and instant payments: what Spain can bring to the table
It goes without saying that Europe has lagged behind other world powers in many of the technological races of recent decades: from the design of smartphones and the operating systems that control them to the development of artificial intelligence applications, e-commerce platforms or social networks, among other areas of competition. But there is a new race, still in its early stages, in which Europe seems determined not to be left behind: the issuance of CBDCs (central bank digital currencies), which are intended to be an electronic version of cash now that banknotes and coins are in clear decline as a means of payment.
Although China is leading the way with its digital yuan, which is already in operation in a pilot phase in numerous provinces of the Asian powerhouse, the United States is showing a relatively cautious attitude as it ponders the implications (benefits and risks) that the issuance of a digital dollar would have. In Europe, however, the public debate no longer revolves around whether or not a digital euro is necessary, but rather around its design: what this digital euro should look like and what it should be used for.
The European Central Bank (ECB) will this year conclude a research cycle in which it has been refining some key design features. At the end of the year, it is expected to launch a production phase that, without yet implying an issuance decision, will enable it to develop and test technical and business solutions for the digital euro. And, in parallel, before the summer, the European Commission will propose a legal framework for the digital euro that will have to be negotiated by the European Parliament and the European Council to establish the principles for a future issuance by the ECB.
What lies behind this determined push by the EU authorities? In addition to the overarching arguments for issuing a CBDC, such as preserving access to central bank money and the monetary anchor in a context of increasing cashlessness, or responding to the threat of foreign CBDCs or global private currencies, the European authorities have an additional motive: to develop a Europe-wide payment solution that, unlike cards, does not rely on foreign providers. This policy objective of strategic sovereignty in electronic payments is not new, but it has gained greater prominence in the current geopolitical context. The digital euro offers authorities the possibility of directly taking the initiative and developing a European payment solution.
But the truth remains that there are other alternatives to the digital euro to achieve the same goal. In fact, today, payment solutions based on instant payments, such as Bizum in Spain, already cover the use cases that the ECB has prioritized for the digital euro: payments between individuals, payments in brick-and-mortar and electronic commerce, and payments involving public authorities. The only thing missing is the European scale of these solutions, so that they can be used to send money to someone in Finland or buy goods in a French store, as an alternative to cards.
The digital euro project should therefore exploit all possible synergies with instant payments, building on existing infrastructures and solutions, rather than developing new ones from scratch, while at the same time serving as a driver for the expansion and interconnection of domestic instant payment solutions. This would facilitate the deployment of the digital euro more efficiently and allow it to gain traction faster. In addition, payments could be made throughout the euro zone—without the mediation of foreign companies—in both central bank money (the digital euro) and commercial bank money (the current Bizum), thus widening consumer choice.
In the coming months, as the ECB prepares for the implementation phase and EU legislators begin negotiating the legal framework for the digital euro, key decisions will be made on the synergies between the digital euro and instant payments and on the potential role of existing domestic solutions. The Spanish solution (Bizum) is one of the most successful across Europe and could play a major role in the rollout of the digital euro and the expansion of instant payments at the European level.
So, in this new digital race that Europe does not want to lose, Spain has something distinctive to contribute and, therefore, the opportunity to be a key player.