Nagovor viceguvernerja na ACI FMA Adria Financial Market Conference

Velja govorjena beseda. Nagovor je na voljo le v angleškem jeziku. 

Ladies and gentlemen, respected guests, I am grateful to the organizers for the invitation to address such esteemed and diverse audience. Greetings to all of the experts from central banks, financial institutions, academia and many more from ACI Croatia, Serbia and Slovenia.

It is a pleasure and an honour to open today one of the largest financial conferences in the region.

Today we are gathered in perhaps the most famous Slovenian tourist destination, Bled, a valley and lake created throughout millennia by glaciers, in a hotel named after Swiss healer Arnold Rikli, who was one of the first to bring health-tourism to this town. Today, the tourism in Bled is thriving, offering new and improved methods of relaxation.

Just as this place combines elements of the new and the old, tradition and innovation, so does the topic to which I will devote my attention today – Central Bank Digital Currencies.

Just like the glaciers shaped this valley, the payments were shaped by people and their need to trade. What started with simple barter, evolved through payments with commonly accepted goods like gold, though coins to banknotes, a concept which was first introduced to Europeans by Marco Polo, who had encountered banknotes on his voyages in Asia.

Contrary to gold, silver or copper coins of the time, the banknotes held little or none intrinsic value, they were claims on gold held by banks and later became a direct claim on central bank. As such they became a legal tender, meaning that their carrier can be sure they will accepted by every merchant in exchange for goods and services. And since banknotes are carrier instruments, both payers and payees remain anonymous while exchanging cash for goods or services.

Banknotes (alongside coins) remain the only form of public money to which we – the individuals – get access to. For most individuals this doesn’t matter, as private money – money issued by commercial banks – can be used for payments; initially in the form of cheques, credit card slips and transfers, but nowadays increasingly in digital forms. This conversion property of money, that  can be exchanged on demand at par, is called the singleness of money. When an individual can make this conversion, he or she is indifferent to the form of money he holds or uses for payment.  

The most common forms of digital money are deposits at commercial banks, which we have all grown accustomed to. The difference between cash (banknotes and coins) and bank deposits is that the former are a claim on the central banks in physical form, while the latter are a claim on commercial banks in digital form.

While most people today in the euro area still prefer to pay with cash in physical stores, in some countries cash is still slowly but surely loosing ground in more than 2/3 of cases. The pandemic boosted the use of digital payments, which in turn intensified the fall of  cash payments.

The majority of digital payments in Europe are made via debit and credit cards, 70% are made with cards of one of the major card schemes. At the moment, mobile app payments hold a small, but rapidly growing share of payments. There is a spread of digitalization influenced payment habits of individuals so that they expect their payment to be executed in few seconds, just like sending and receiving an e-mail. Merchants on the other hand are happy to receive the settlement at the end of the day, sometimes even after a few days.

More exotic forms of payments, such as tokens, crypto assets or even so called stablecoins don’t fit into the singleness of money framework, since they can not be exchanged at par and on demand with other forms of money. They still represent important innovations and a contender for the future.

The changes in payment habits and the proliferation of financial technological (“fintech”) innovations were among the reasons why the Eurosystem decided to launch the Digital Euro project in October 2020, with the publication of the Digital Euro Report, to explore the possibility of introducing a Central Bank Digital Currency (CBDC). The Eurosystem’s CBDC – digital euro – would be central bank money for digital retail payments made by citizens and business in the entire euro area. Eurosystem is not alone in pursuing a CBDC – more than 130 central banks covering 98% of World’s GDP are looking into it. 

In the Eurosystem, we have started analysing CBDCs relatively early, that is in 2017. This further intensified in 2020 with the Report on the digital euro, 2021 (start of investigation phase) and, more recently, in November 2023 with the start of the preparation phase. In the investigation phase, we have formulated the theoretic design of a digital euro. The following (almost) two years are devoted to further preparations to issue the digital euro if we decide so.

Nevertheless, regarding the issuance of the digital euro, we are not quite there yet. There is no denying that issuing a new form of currency is a complex endeavour. As innovations often bear several types of risks, for example financial, reputational and operational, every aspect and every technological detail must be thoroughly thought out before we take decisive steps. We have a responsibility to do the digital euro the right way.

The digital euro is still several steps, years and decisions away from being available to the Euro area residents. If and when it will be launched, the digital euro will be a widely accepted digital means of payment, with the same legal tender status as banknotes and coins.

The digital euro will be the first pan-European solution for all digital payment needs. It will be used for purchases in physical shops and for e-commerce, as well as for transfers to other individuals (peer-to-peer payments) and to or from governmental institutions. With digital euro, it will be possible to pay like with any other digital payment method, via Internet. From the very beginning, it will offer offline payments, the closest digital payments can come to cash experience. Because of this, offline functionality of the digital euro will always work, making sure that individuals can also pay in the times of potential network outages, which would make our payment system more resilient.

Digital euro fits into the paradigm of singleness of money, its holders would have a claim on the central bank, and the digital euro would always be convertible 1-for-1 with all forms of euro currency, such as (physical) cash or commercial bank deposits.  

We may view the digital euro as an evolution of money, combining technological and financial innovation and opening the door to a world of new possibilities and opportunities. At the same time, the digital euro is by no means meant to replace cash, as both forms of central bank money would continue to exist – hand in hand. Just as the banknotes were an evolution of coins, but they never fully replaced them.

If we were to decide to issue a digital euro, I am convinced that this will increase competition in the digital payments market, enhancing the overall efficiency and reducing costs of payment services. Digital euro will be a platform for innovations, offering great incentive and opportunity for payment service providers to build their own payments solutions on top of digital euro payment rails and offer value added services to their customers.

Digital euro is also strategically important in the light of current dominance of a few non-EU players in card and online payments in Europe and the expansion of technological giants into the payments sphere. We need to be prepared to offer truly European digital payment solution. We need to ensure access to central bank money also in the digital age. The answer is digital euro.

If somebody were to ask me why we need digital euro, I would give him an example of a smartphone. Less than a couple of decades ago, we were perfectly content with calling from our desk, sending emails on desktop computers, taking pictures with cameras and watching movies on the TV. Now we cannot imagine our life without smartphones, which offer us all that in the palm of our hand. Similarly, this would hold for digital euro, which would offer us ultimate payment solution.

I would like to thank you for your attention and wish you a very successful two days and interesting discussion on a wide array of topics.