The Institute of International Finance (IIF), a global financial industry advocacy organization, has conducted an assessment of the European Commission's proposed legislation for a digital euro. The bill, introduced in June, received an average score in the assessment conducted by the IIF.
In its evaluation, the IIF examined seven key areas related to the proposed digital euro legislation. It found that the legislation "partially addresses" six of these areas. While some aspects of cost-benefit analysis were considered "basic and high-level," Others relied on previous research or were missing crucial details.
One significant concern highlighted by the IIF is the limited financial stability and bank intermediation mechanisms outlined in the bill. The restrictions have yet to be clearly defined, leaving uncertainty about how they will be enforced. Additionally, payment service providers (PSPs) face challenges in recouping the costs associated with implementing digital euro services, including infrastructure connections and wallet software development, as fees are capped. Credit institutions are also mandated to provide basic digital euro services for free, posing economic and responsibility model challenges.
Privacy controls for the digital euro have not been clearly defined, and it remains unclear what steps PSPs will need to take to ensure compliance once the digital euro is introduced. Furthermore, measures related to anti-money laundering and cybersecurity are yet to be developed. Governance and potential conflicts of interest have not been adequately addressed in the legislation. The European Central Bank (ECB), as both the banking supervisor and the "issuer, administrator, and fee-setter" of the digital euro, may face conflicts between its supervisory and operational roles, without provisions for independent oversight.
The IIF also emphasized the importance of interoperability, suggesting that creating a parallel system would be costly and inefficient. Instead, it proposed that the digital euro should operate on the same platform as other digital currencies. The legislative proposals for the digital euro are being developed Alongside its infrastructure, with the digital euro expected to enter the investigation phase in October. The issuance of a live digital euro will ultimately depend on the passage of the legislation.
