The Association of German Banks supports a digital Euro and calls for legal changes to enable its implementation in the current banking system.
The idea of a digital Euro has been up for debate since the German federal government has published its blockchain strategy in September. The strategy paper included the suggestion of a state-run blockchain infrastructure, the “Bundes-Chain,” and a digital Euro – the latter has sparked a discussion about the pros and cons of a government-run digital currency among lawmakers, industry leaders, and users.
Part of the reason why lawmakers are calling for a digital Euro is Facebook’s Libra currency, which has thrown governments’ monetary sovereignty into question. Another reason is China’s eagerness to launch a digital Yuan, a project that might become a reality already in 2020.
But besides political considerations, there are significant economic advantages a digital currency can provide to the existing monetary system. That’s what we should really be talking about, instead of Libra or China.
The Association of German Banks (“Bundesverband der deutschen Banken”) wants to drive this discussion and points to the legal changes required to enable the implementation of a digital Euro within the current European banking system.
The announcement states 11 key positions
In its press release, the Association – which consists of more than 200 banks in the German-speaking area, including industry leaders such as Deutsche Bank, Credit Suisse, and Commerzbank – formulated 11 key positions:
- A stable currency is a basis for any economic system, and the responsibility for the monetary system lies, and will continue to lie, with sovereign national states
- “Programmable digital money” – meaning cryptocurrencies used in combination with smart contracts – will be a key component in the next stage of digitalization
- The Association calls for the creation of a common pan-European payments platform that enables banks to use a digital Euro that is interoperable with book money
The banks also call for several legal changes:
- The creation of a uniform supervisory and regulatory framework to strengthen public trust in a digital Euro
- Changes in existing banking law – including rules that allow banks holding a banking license to issue a digital Euro and provide custody services
- A pan-European approach to competition law that enables banks to compete with challenger banks and Fintech companies that do not have to adhere to the same standards as licensed banks
- A European – or better a global – digital identity standard so every user, whether man or machine, can be identified, to effectively combat money laundering.
- A data protection strategy
- A clear legal basis on which digital money may be used, including an adjustment of existing consumer protection standards
- German tax law must clarify for income tax purposes whether digital money is a currency or an economic good, provide a legal clarification to facilitate its VAT treatment, and guarantee tax enforcement concerning wallet management – especially in third countries
- The extension of existing deposit guarantee schemes should include digital currency as well
Reading the announcement, two things become apparent: Firstly, banks have understood the changes digital money will bring to the existing currency system.
Secondly, banks know that they need to act and become a driving force instead of a neutral bystander. Innovation happens anyway, and if banks don’t take a seat at the table, technology companies will one day dominate financial markets.