 Hey, morning. Good morning. Can I have a cappuccino? Sure. Brilliant. Can I actually pay with my watch? Of course. Brilliant, thanks. Have a nice day. You too. Money has come a long way. Today in Europe, it's normal to see someone pay for a coffee with a card or their phone, or to even reach their arm over to pay with their watch, like you just heard me do in my local café. Many people are shifting away from cash and towards digital ways of paying. That's why one year ago, in October 2021, we started looking into whether the euro should go digital too. Today we're explaining what a digital euro is, why we need it, and how it would actually work in practice. You're listening to the ECB podcast, bringing you insights into the world of economics and central banking. My name is Katie Ranger. To break this all down, I'm joined by my colleague who leads the digital euro project here at the ECB, Evelyn Vidlocks. Evelyn, welcome to the podcast. Thank you very much. Let's start with the basics. Imagine I'm someone who's never heard of a digital euro. How would you explain it to me in, let's try two sentences? That's a challenge, but let me try. What it essentially is, is it's central bank money, so it's a money of the central bank. Therefore, it looks very much like cash. If you hold cash, you have a claim towards the central bank. You don't realize it because normally you just pay with that. With the digital euro, we're investigating if we can make a digital version of that. Digital money created by central banks, so the ECB here, available to everyone, I assume, because cash is available to everyone as well. We think it can only work, and that's with every payment method when it's widely used and widely accessible. It will be for everybody in the euro area. It's kind of like a digital version of bank notes and coins, but isn't that like my debit card? If I go to the bakery and buy some bread, how is it going to be different if I use the digital euros to what I do now with my debit card? Maybe in the first glance, it will look very much the same. Of course, we still are in the designing phase, so whether it will be really a card or with your watch like you just shown, or maybe in the future we do it with iris scan. How do you do it? How do you do the payment? We can also be changing over time when technology changes, but the most important part is really the source of money that you pay with. If you now pay with your card, you pay with what we call commercial bank money or private money. You have a claim to the bank with digital euro. It will be central bank money, and you will have a claim to the central bank. That is in essence really the difference. Why is this important? You don't realize it because the payment system now works and we all trust the debit card, but it's founded in the fact that you know that at some point you can transfer it into cash into a central bank claim. In the sense that the money is in the bank account, so it's private money, but I can always go to an ATM and get bank notes, which are essentially the central bank money, the public money. Because that trust is there, the whole system works. We find it important when we move to a digital age where like you just explained at the beginning, we do more and more digital payments that we have the same trust and with that we give trust to the full system of payments. Right now, only cash can be considered public money and everything else basically is private money. For those of our listeners who want to learn a little bit more about this difference, we've actually just published an explainer on this topic on our website. It's also available in all EU languages, so we'll definitely add a link to that in the show notes. Okay, so back to public and private money, where exactly does a digital euro come into all of this? As explained, we currently have cash and we also as ECB stay committed to cash, so the digital euro will come next to cash, but we'll provide the same confidence in the system, but then in the digital arena, because as we just explained, in the digital arena, currently there are only private money solutions. So we want to add there also a central bank solution to have that anchor there as well, like cash is currently in the physical way of payments. So bank notes and coins are kind of like the safest money available at the moment because they're backed by the central bank. So that would then also be the case for the digital euro. So it would be a very safe form of digital money. Yes, that's true, but as I have explained, because it's there, it always also makes the privately issued monies safe and secure because there is this trust, so we give safety I think for all solutions that are there in the market. Okay, excellent. So we've covered what a digital euro is and how it fits in alongside what we already have in terms of digital payments. But those digital payments have been around for quite a long time, at least as long as I can remember. And as I mentioned in my introduction, we only started talking about what a digital euro might look like one year ago in October 2021. Why now? What's been the push to start looking at it now? The investigation, of course, is stepping up. The ECB has been looking into this kind of solutions earlier on. And why now is because that the society at large is digitalization. And with COVID, and it has only increased. So we have seen that the increasement, for example, in the last years was already 12 and a half percent of extra uses of digital ways of payments. So we move from using cash to digital means of payments. Of course, we do more more business online. So we shop more online than we did like 10 years ago, but even more than two, three years ago. And secondly, also in areas where you can still pay with cash, people seem to prefer to pay with digital payments. So for example, merchants say like 53 percent has a preference for acceptance of digital means of payments. But also on the consumer side, people have said roughly 50 percent said that they prefer to pay with digital means of payments. So society is changing the way that we want to pay is changing. So it's important to consider that in that area, the ECB is also playing. Next to that, we see all kind of new players entering the market, like with cryptocurrencies or stable coins. We believe it's important that we have this safe way of payment as a very good alternative to pay in the digital area. So it's kind of like moving with the developments in society that we're seeing, especially after the pandemic, and also ensuring this safe form of payment in today's world. Yes, indeed. You kind of touched upon it earlier a little bit, but if a digital euro is the equivalent to cash, and people are paying digitally more and more, as you've just said, would a digital euro replace cash? No, I want to be very clear. So the ECB stays committed to cash. Like I said, 50 percent have a preference for digital payment, but that also means that 50 percent still wants to pay with cash. So we stay committed to cash as long as it's needed. Okay, Evelyn, let's turn to look now at the logistics of it all and what it would be like to actually have my own digital euros. I've got quite a lot of questions, but first of all, where would I keep them? Would I have a bank account at the ECB? Like I have a bank account at a private bank at the moment. And if I would, then would that mean that private commercial banks are obsolete, that we don't need them anymore? Now, that's a very good question, but that's not a plan. So the ECB has no plans to hold accounts for the citizens. So that's why we have said that the distribution of a digital euro will be done via the intermediaries, we call them, but the banks, but also payment institutions, can play a role there. And that will mean that you will have an account at your bank, let's say that as an example, just if you have like now your normal account, then you will also have an additional digital euro account. Okay, specifically for my digital euro. Yes. And of course, the bank has then a link to the central bank for the whole settlement, but you will interact as a citizen with your bank and have a contract with them on that. Okay, so we'll need banks, as you said. Yes. But banks offer a lot of different services. I mean, you can withdraw money, but you can also get loans from them. Maybe you can even use them to invest for you. How would that work with the digital euro? Would you be able to do all those things with a digital euro? Now, the digital euro is really designed as a means to pay. So all the other things like loans, things that you just described will be services that the bank offer, but will not be in the remit of the of the digital euro. Okay, so it's very much about day to day payments, withdrawals, and just paying for things online and in shops in it. Exactly that. Okay, so I've got my digital euros in my bank account. What will paying with them actually look like? Yes, so as I said, we're still in the design phase. So this is something we need to explore. And probably over time, this will also change because technology can make new things visible. So you could imagine that it would be something with a mobile wallet, or like you just said that you paid with your watch, but it can also be a card. We're still investigating that with this means of payment, you can pay all over the euro area. So like with cash. So if you withdraw cash in Spain, and you go to Germany, you can just pay there. And with the digital euro, we really want to make sure that this is the same. So independent with which bank you work with, or which country you come from, you have a way of payment which you can use all over the euro area. Okay, that's great, because actually sometimes now when I go to to other countries, I have to pay quite a lot of money to get money out there when I'm when I'm in a different country to Germany, for example. So that it will be able, I can I can get money all across the euro area in the same way with my digital euros. Well, that's great. It's meant mainly for payments. So it's digital. So we hope that stays digital. But we indeed will allow you to pay everywhere that you want. And what you see is now that we still have a lot of domestic solutions. So very good solutions. So for e-commerce payments or for payments in the shop, really. But you can't use them outside your country. And that will be very different for digital euro. It will really be a solution for the whole euro area. And just going back to what you said at the beginning of your answer. So it's going to be something that we're kind of already used to. So maybe a card, maybe paying with your phone or your watch. And I guess that's quite important that it's not something new that everyone has to learn. And it's something that feels natural already. I don't exclude that we might introduce something that not everybody in the euro area is used to. So for example, QR code is common in some countries, but not in others. Or some people are more used to receive a link and then pay with this link than in other countries. So I don't exclude there might be something new in the design. But we will, of course, make sure in the design that it's very easy to use and very easy to learn as well. Good news. Good news. Well, thank you for this very interesting conversation, Evelyn. There's still a lot more to unpack on this topic though. So in our next episode, we'll actually be continuing our conversation about the digital euro. We'll look at privacy and how your data would be handled with a digital euro, plus what it could mean politically for Europe. Then we'll also go over what the next steps are in the digital euro project. Check out the show notes for further reading on this topic. You've been listening to the ECB podcast with Katie Ranger. If you like what you've heard, please subscribe and leave us a review. Until next time, thanks for listening.