CBDC Weekly: Treasury Weighs In; ECB Payments Testers

While the Treasury Department report on “The Future of Money and Payments” was as carefully neutral as ever about the need for and desirability of a digital dollar, a great deal of attention was paid to the topic in the Sept. 16 report, one of three focused on creating a regulatory framework for cryptocurrencies and digital assets like stablecoins and NFTs required under President Biden’s executive order on the topic.

It broke the issue down into four policy considerations: payment efficiency and innovation, U.S. global financial leadership, advancing financial inclusion and minimizing risks.

See also: Treasury Lends Tacit Support to Digital Dollar

While it mentioned banks’ concerns over disintermediation from their core customers, it kept the topic very short. It did, however, spend a great deal of time on the existing real-time payments solutions, including The Clearing House’s RTP Network and the forthcoming FedNow — which have been said to undercut one of the main reasons advanced for central bank digital currencies (CBDCs) generally.

ECB Selects Five Digital Euro Partners

The European Central Bank (ECB) has selected five partners including Amazon and a trio of payments firms and organizations to participate in a “prototyping exercise” that will focus on five different use cases of a digital euro.

Read more: Amazon, Nexi, Worldline, CaixaBank, EPI Join Digital Euro Project

The exercise is part of the ECB’s two-year investigation phase into building a digital euro. While the EU has not determined if a CBDC is needed or wanted, the ECB and its president, Christine Lagarde, have been vigorous proponents.

The front-end focused tests will see various parts of a digital euro tested by Amazon, Spain’s CaixaBank, Worldline, Nexi, and the European Payments Initiative (EPI) a group of 33 banks, payments institutions and credit acquirers.

Amazon will build prototypes for eCommerce payment. Italian payments group Nexi will test point-of-sale payments initiated by the payee, while EPI will do the same for those initiated by the payer. Payment services firm Worldline will focus on the peer-to-peer (P2P) transactions taking place offline, and CaixaBank will test P2P online payments.

The ECB is scheduled to make a go/no go decision on the digital euro next September, with these five tests’ results due in the first quarter of 2023.

Call for Digital Euro Cap

A copy of a forthcoming report on the digital euro leaked to crypto news source CoinDesk said a “digital euro could play a vital role to strengthen the strategic autonomy of the European Union and to foster financial sector innovation.”

The paper, written by senior finance officials from France, Germany, Italy, Spain and the Netherlands, called for a digital euro to be environmentally friendly, and said it must respect and protect users’ privacy.

It also “appeared” to support a suggestion by ECB Executive Board Member Fabio Panetta that the digital euro be capped. He has proposed a $1.5 trillion total cap for a digital euro would limit individual holdings to 3,000 euros to 4,000 euros in order to protect financial institutions from the disintermediation.

Also read: Bankers Urge EU to Proceed With Caution on Digital Euro

“By design, the digital euro will not crowd out existing private financial instruments,” he said in June. “Rather, it will preserve the coexistence of central bank money and private money, supporting innovation by private intermediaries.”

See more: CBDC Weekly: Report Says CBDCs Can Outdo Crypto

Flutterwave Backs eNaira

African payments technology firm Flutterwave announced on Sept. 14 that it would support Nigeria’s eNaira, allowing its merchants to accept payment in the nation’s groundbreaking but slow-to-be-adopted CBDC.

The news will be considered a win for Nigeria, far and away the largest nation to have formally launched a CBDC. Merchants who enable the eNaira payments will be able to either produce a QR code for customers to scan or generate single-use tokens.

See here: Flutterwave Launches eNaira Payments for Businesses in Nigeria

Central Bank of Nigeria Governor Godwin Emefiele criticized banks for downplaying the eNaira and putting up roadblocks to adoption in July, saying their fear of the loss of transaction fees and disintermediation from their customers was the reason. Which is, roughly, what U.S. banks have said.

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