A European Central Bank (ECB) blog post discusses the importance of robust payment mechanisms. While the report focuses on legacy systems, it also addresses new blockchain-based technology such as the digital euro.
Published on 28 April by Fabio Panetta, an executive board member of the Bank, the report points out that payment systems’ stability is a critical task, especially in times of crisis.
Traditional Competitor to Blockchain Technology
The study focused heavily on praising the New Instant Payment System (TIPS) launched in November 2018. This instant payment network introduced by the ECB provides a layer of settlement for commercial banks.
If introduced on a large scale, businesses and individuals would communicate with each other directly and without restriction on weekends or business hours.
The program is new, and only the Swedish central bank promises to implement it by 2022. Panetta pointed to similar schemes for the settlement of large-scale financial transactions, Target2 and Target2 Securities. The current use of these systems is to settle financial transactions in Europe. They have reported relatively stable performance as demand rose due to the Coronavirus-induced market crash in March.
The digital euro as the nationalization of online payments
Panetta noted that the lockdowns made safe and low-cost electronic payment solutions even more critical than before.
The European financial system depends heavily on banks to provide peer-to-peer cash transactions. Despite improvements in cross-border communication with the Single Euro Payment Area (SEPA), they suffer from all the traditional system drawbacks.
U.S. companies such as Visa, MasterCard, and PayPal provide retail payment services.
There is a lack of confidence in Facebook’s Libra, which triggered a wave of hostile reactions from European regulators.
The European Central Bank is looking at solutions that would create homegrown systems to handle brick-and-mortar and e-commerce payments.
The digital euro is being tested as part of this initiative, and Panetta states that the Covid-19 experience will be weighed while evaluating its feasibility.
However, Panetta emphasized that the digital euro should not hinder or overtake market-led efforts to introduce private electronic means of payment.
It remains to be seen whether this statement is intended for decentralized crypto or more traditional companies. It is worth noting that the EU has been fairly indulgent in cryptocurrency regulation. But the introduction of cryptocurrencies will definitely appear as a much greater threat to financial sovereignty.