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A digital euro for everyone: Can the European System of Central Banks introduce general purpose CBDC as part of its economic mandate?

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Abstract

This paper discusses the introduction of a general-purpose Central Bank Digital Currency (CBDC) by the European Central Bank (ECB) that is directly accessible to consumers through national central banks (NCB). This paper finds that it is not possible to introduce such a system under the ECB’s monetary mandate. The aim of direct access is to promote the socio-economic inclusion of the unbanked. This aim is not monetary but economic. Therefore such an introduction should be in accordance with the economic mandate of the ECB. This paper first analyses the legal foundation in “Legal foundation” section upon which CBDC can be introduced. It finds that it is possible to introduce CBDC based upon the ECB’s authority to issue legal tender. However, this would not provide a sufficient foundation to provide for direct access. Nor does article 17 of the ESCB Statutes provide the legal foundation for direct access. New legislation would have to be drafted for the ECB to introduce a CBDC system with direct consumer access. Even with this new legal foundation, the ECB would have to comply with its economic mandate. This article first analyses the extent of the economic mandate in “Framework” section. It then continues by discussing the aim of the economic mandate in “Aim” section. It finds that the socio-economic inclusion of unbanked is an aim consistent with the Treaties. The aim of general purpose CBDC, therefore, complies with the ECB’s economic mandate. The paper in “Efficient allocation of resources” section then discusses the criterion of efficient allocation of resources. It finds that the introduction of general purpose CBDC does not comply with this criterion. When introducing CBDC with direct access through NCBs the ECB is competing with commercial banks. This competition should be considered unfair based upon the ECB’s exclusive power to issue legal tender and the public status of NCBs. Since the issue of unbanked in the EU is limited and decreasing, there is not enough reason to consider offering a bank account as a Service of General Economic Interest. The introduction of directly accessible general purpose CBDC would therefore be unlawful.

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Notes

  1. ECB Press Release, ‘Eurosystem launches digital euro project’ 14 July 2021, available:  https://www.ecb.europa.eu/press/pr/date/2021/html/ecb.pr210714~d99198ea23.en.html. 

  2. Neumann, J. and Lacqua, F. (2001) Lagarde says ECB could have a digital currency within four years. Bloomberg, 31 March.

  3. De Nederlandsche Bank (2020) Digitaal centralebankgeld. Doelstellingen, randvoorwaarden en ontwerpkeuzes. Amsterdam, Occasional Studies volume 18–1, p. 40.

  4. Brett, J. (2020) Federal Reserve Reveals Research Plans for Digital Dollar. Forbes,13 August.

  5. European Central Bank (2020) Report on a digital euro. Frankfurt, October.

  6. DNB 2020 n. 2, p. 8.

  7. ECB 2020 n. 5, p. 5.

  8. Mooij, A. M. (2021) 'The European Central Bank’s monetary policy and Central Bank Digital Currency: Can the ECB lawfully introduce a digital euro under its monetary mandate?', Irish Journal of European Law 2021(23) (forthcoming).

  9. Mooij, A. M. (2021) European Central Bank Digital Currency: The Digital Euro. What Design of the Digital Euro Is Possible Within the European Central Bank’s Legal Framework? BRIDGE Network Working Paper Series No. 14 (May). Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3838729.

  10. Ibid, pp. 36–37.

  11. ECB 2020 n. 5, p. 21.

  12. Arnold, M. (2021) Interview with Fabio Panetta, Member of the Executive Board of the ECB. Financial Times, 20 June.

  13. Ibid.

  14. Mooij 2021, n. 9, pp. 13–14.

  15. Fegatelli, P. (2019) Central Bank Digital Currencies: The Case of Universal Access to Central Bank Reserves. Cahier D’Études Working Paper No. 130 Banque Centrale Du Luxembourg, p. 6.

  16. Ibid, p. 9.

  17. Ibid.

  18. Pfister, C. (2017) Monetary Policy and Digital Currencies: Much Ado about Nothing? Working Paper Banque de France, p. XII.

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  21. Boar, C. et. al., (2020) Impending arrival—a sequel to the survey on central bank digital currency, BIS Papers 107, p. 4; BIS-2018, p. 7.

  22. ECB 2020 n. 5, p. 3.

  23. Terracciano, T. & Somoza, L. Central bank digital currency: the devil is in the details. London School of Economics May 26 (2020). https://blogs.lse.ac.uk/businessreview/2020/05/26/central-bank-digital-currency-the-devil-is-in-the-details/.

  24. E.g. article 7a of the Dutch minimumwage act requires the minimum wage to be transferred to a bank account on the name of the employee.

  25. Directive on payment accounts—Factsheet 3, Access to payment accounts.

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  27. Ibid, p. 307.

  28. Ibid, p. 305.

  29. Grünewald, S. N., Zellweger-Gurknecht, C. & Geva, B. Digital Euro and ECB Powers. Common Market Law Review 58(4) 2021.

  30. Ibid, pp. 25–26.

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  33. Ibid, p. 1701–1702.

  34. Lastra, R. M. & Alexander, K. The ECB Mandate: Perspectives on Sustainability and Solidarity. Monetary Dialogue Papers, June 2020, pp. 12–13.

  35. PROTOCOL (No 4) ON THE STATUTE OF THE EUROPEAN SYSTEM OF CENTRAL BANKS AND OF THE EUROPEAN CENTRAL BANK 2016.

  36. See: Commission Recommendation of 22 March 2010 on the scope and effects of legal tender of euro banknotes and coins [2010] OJ L 83/2010, p. 70–71; Preamble 2, Council Regulation (EC) No 974/98 of 3 May 1998 on the introduction of the euro OJ L 139/1998, p. 1–5; Council Regulation (EC) No 1103/97 of 17 June 1997 on certain provisions relating to the introduction of the euro OJ L 162/1997, p. 1–3.

  37. Grünewald et. al. 2021, n. 8., p. 6.

  38. ECB 2020, p. 25.

  39. Grünewald et. al. 2021, n. 8., p. 24.

  40. Grünewald et. al. 2021, n. 8., pp. 8–9.

  41. Case C-422/19 and C-423/19 Dietrich and Häring v. Rundfunk [2021] ECLI:EU:C:2021:63 (further: Dietrich and Häring v. Rundfunk), paraf. 40.

  42. AG Pitruzzella in Dietrich and Häring v. Rundfunk, paraf. 65.

  43. DNB 2020, pp. 12–14.

  44. Dietrich and Häring v. Rundfunk, para. 40.

  45. Dietrich and Häring v. Rundfunk, para. 23.

  46. Ibid, para. 79.

  47. Ibid.

  48. Bijlsma, M. et. al. (2021) What triggers consumer adoption of CBDC?. Amsterdam, 709 DNB Working Paper, p. 10.

  49. Ibid, p. 3.

  50. European Central Bank > Collateral < https://www.ecb.europa.eu/paym/coll/html/index.en.html.

  51. Borger, V. (2013) The ESM and Pringle. German L.J. 14, p. 129.

  52. Case C-62/14 Gauweiler a.o. v. Deutscher Bundestag [2015] ECLI:EU:C:2015:400 (further: Gauweiler a.o. v. Deutscher Bundestag), para. 98.

  53. DNB 2020 n. 2, p. 20.

  54. This problem was described by DNB, p. 26.

  55. ECB 2020 n. 5, p. 7.

  56. Ibid.

  57. Ibid, p. 20.

  58. Ibid.

  59. Dietrich and Häring v. Rundfunk, paraf. 38.

  60. Directive 2014/92/EU OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 23 July 2014 on the comparability of fees related to payment accounts, payment account switching and access to payment accounts with basic features.

  61. European Commission, Directive on payment accounts—Factsheet 3, Access to payment accounts.

  62. Ibid.

  63. Ibid.

  64. Lupo-Pasini, F. (2020) Is it a wonderful life? Cashless societies and monetary exclusion. Review of banking and financial law (40), p. 36.

  65. European Commission, Directive on payment accounts—Factsheet 3, Access to payment accounts.

  66. Ibid.

  67. Directive 2014/92/EU of the European Parliament and of the Council of 23 July 2014 on the comparability of fees related to payment accounts, payment account switching and access to payment accounts with basic features Text with EEA relevance (further: Directive).

  68. Lupo-Pasani 2020, n. 46, pp. 38–39.

  69. Lastra, R., Alexander, K. (2020) The ECB Mandate: Perspectives on Sustainability and Solidarity. Monetary Dialogue Papers, p. 12.

  70. Gauweiler a.o. v. Bundestag, para. 68.

  71. Cukierman, A., Web, S. B. and Neyapti, B. (1992) Measuring The Independence Of Central Banks And Its Effect On Policy Outcomes. The World Bank Economic Review 6.

  72. Hofmann, H. (2015) Controlling the Powers of the ECB: delegation, discretion, reasoning and care What Gauweiler, Weiss and others can teach us. Working paper version 18 April 2018, http://hdl.handle.net/10230/35491, p. 4.

  73. Ibid.

  74. Cukierman, A., Web, S. B. and Neyapti, B. (1992) Measuring The Independence Of Central Banks And Its Effect On Policy Outcomes. The World Bank Economic Review 6.

  75. See for more on this topic: Buiter, W. H. (2010) Reversing Unconventional Monetary Policy: Technical and Political Considerations. CEPR Discussion Paper No. DP7605, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1533210.

  76. Randzio-Plath, C. (1998) Democratic Accountability in the 3rd phase of EMU. European Parliament Report.

  77. Ibid.

  78. Ibid.

  79. Sablik, T. Recession of 1981–1982. Federal Reserve History. Available: https://www.federalreservehistory.org/essays/recession-of-1981-82. (last accessed 05 October 2021).

  80. Federal Reserve’s Second Monetary Policy Report for 1982, Hearings before the Committee on Banking, Housing, and Urban Affairs, United States Senate, 97th Cong. (July 1982).

  81. BVerfG, Judgement of the Second Senate of 21 June 2016—2 BvR 2728/13-, paras. 1–220. Available: http://www.bverfg.de/e/rs20160621_2bvr272813en.html.

  82. Penessi, F. (2016) The impossible constitutional reconciliation of the BVerfG and the ECJ in the OMT case. A legal analysis of the first preliminary referral of the BVerfG. Perspectives on Federalism 8(3), p. 7.

  83. Ibid.

  84. BVerfG, Judgement of the Second Senate of 5 May 2020—2 BvR 859/15-, paras. 1–237. Available at: http://www.bverfg.de/e/rs20200505_2bvr085915en.html.

  85. DIRECTIVE 2014/92/EU.

  86. Ibid, article 1(2).

  87. Ibid, article 15.

  88. i.e. someone who is blind might not know if the shop charges him/her €1,- or €100,- whilst can feel the shape of the physical cash leaving his/her hand.

  89. Case C-233/94 Federal Republic of Germany v European Parliament and Council of the European Union [1997].

  90. Ibid, paras. 26–27.

  91. Ibid.

  92. Case C-84/94 United kingdom v Council of the European Union [1996] ECLI:EU:C:1996:431.

  93. Craig, P. and De Búrca, G. (2011) EU Law. Text, Cases, and Materials. Oxford: 5th edn, OUP, p. 99.

  94. Directive article 16(1).

  95. Craig & De Burca 2011, n. 65, p. 86.

  96. I.g. in the Netherlands minimum wage must be transferred in euros to the employee on a bank account on his/her name. Thus indirectly a (potential) employee must have a bank account.

  97. Lastra and Alexander 2020, n. 51, p. 12.

  98. Ibid.

  99. Blanke, H. and Mangiameli, S. (2013) The Treaty on European Union (TEU). A Commentary. Berlin: Springer, p. 159.

  100. Ibid, p. 161.

  101. DIRECTIVE 2014/92/EU OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 23 July 2014 on the comparability of fees related to payment accounts, payment account switching and access to payment accounts with basic features.

  102. Ibid, preamble 7.

  103. Blanke and Mangiameli 2013, n. 71, p. 173.

  104. Ampudia, M. and Ehrmann, M. (2017) Financial Inclusion: What’s it worth? Frankfurt, Working Paper Series No 1990 available at: https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1990.en.pdf, p. 14.

  105. Blanke and Mangiameli 2013, n. 71, p. 164.

  106. Monti, G. (2012) EC Competition Law. Cambridge: Cambridge University Press, pp. 20–21.

  107. Nabilou 2020 n. 4., p. 20.

  108. Ibid.

  109. Dawson, M. (2017) The Governance of EU Fundamental Rights. Cambridge: Cambridge University Press, p. 187.

  110. Ibid.

  111. Note by the ECB for the Economic and Financial Affairs Council (Ecofin) on the retail payment landscape, December 2019. https://www.ecb.europa.eu/pub/pdf/other/ecb.other191204~f6a84c14a7.en.pdf.

  112. Ibid, p. 3.

  113. Ibid.

  114. See for comparison: Case C-320/91 Paul Corbeau [1993] ECLI:EU:C:1993:198 where it was established general mail is a public function but package service is not.

  115. Case C-41/90 Höfner and Elser v Macrotron GmbH [1991] ECLI:EU:C:1991:161, para. 21.

  116. Kloosterhuis, E. (2017) Defining non-economic activities in competition law. European Competition Journal (13)1, p. 118.

  117. Ibid, p. 123.

  118. Ibid.

  119. Ibid.

  120. Ibid.

  121. DNB 2020, n. 2, p. 4.

  122. Kloosterhuis 2017, n. 88, p. 124.

  123. ECB 2020 n. 5. p. 11.

  124. Ibid, p. 19.

  125. Case C-49/07 Motosykletistiki Omospondia Ellados NPID (MOTOE) v Dimosio [2008]ECLI:EU:C:2008:376, para. 20.

  126. Case C-41/90 Klaus Höfner and Fritz Elsear v. Macrotron GmbH [1991] ECLI:EU:C:1991:161, para. 4.

  127. Carstens, A. (2021) Digital currencies and the future of the monetary system. Speech at Hoover Institution policy seminar. Basel 27 January 2021, p. 15.

  128. Ibid.

  129. Bijlsma, M. et. al., (2021), n. 30, p. 3.

  130. Ibid.

  131. Cukierman, A. (2010) Central Bank Finances and Independence – How Much Capital Should a CB Have? Available at: https://www.researchgate.net/publication/241403791_Central_Bank_Finances_and_Independence_-_How_Much_Capital_Should_a_CB_Have, p. 1.

  132. Fernández-Villaverde, J. et. al., (2020) Central bank digital currency: Central banking for all?’ Review of Economic Dynamics, p. 7.

  133. Ibid.

  134. Ibid, p. 16.

  135. Cukierman, A. (2010), n. 103, p. 1.

  136. ECB 2020 n. 5, p. 6–7.

  137. European Commission > European Deposit Insurance Scheme. https://ec.europa.eu/info/business-economy-euro/banking-and-finance/banking-union/european-deposit-insurance-scheme_en.

  138. Fernández-Villaverde et. al. 2020, n. 104, p. 7.

  139. See: article 127 TFEU.

  140. European Central Bank Key Interest Rates < https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html. 

  141. Commission, Directive on payment accounts—Factsheet 3, Access to payment accounts.

  142. Andolfatto, D. (2018) Assessing the Impact of Central Bank Digital Currency on Private Banks. Federal Reserve Bank of St. Louis, pp. 537–538.

  143. Fernández-Villaverde et. al. 2020, n. 104, p. 7.

  144. ECB 2020 n. 5, p. 16.

  145. Wetenschappelijke Raad voor het Regeringsbeleid, Geld en Schuld. Den Haag 2019, p. 137.

  146. Consolidated version of the Treaty on European Union—PROTOCOLS—Protocol (No 26) on services of general interest, Official Journal 115, 09/05/2008 P. 0308—0308.

  147. Ibid, article 1.

  148. Ibid.

  149. Bekkedal, T. (2011) Article 106 TFEU is Dead. Long Live Article 106 TFEU! In Erika Szyszcak et al. (eds) Developments in Services of General Interest. Berlin and Heidelberg: Springer, pp. 64–65.

  150. Case C-157/94 Commission v. Netherlands, [1997], para. 37.

  151. Cases C-159/91 and C-160/91 Christian Poucet v. Assurances Générales de France and Caisse Mutuelle Régionale du Languedoc-Roussillon [1993] ECLI:EU:C:1993:63.

  152. Ibid, ground 18.

  153. Sauter, W. and Schepel, H. (2010) State and Market in European Union Law. Cambridge: Cambridge University Press, p. 86.

  154. Ibid, p. 87.

  155. Cases C-264/01, C-306, C-354/01 and C-355/01 AOK Bundesverband v. Ichthyol-Gesellschaft Cordes [2004], para. 52.

  156. Nascimbene, B. and Di Pascale (2018) A. The Modernisation of State Aid for Economic and Social Deveolpment. Berlin and Heidelberg: Springer, p. 100.

  157. Case C-622/16P to C-624/16P Montessori v. European Commission [2018] ECLI:EU:C:2018:873.

  158. Houben, I. S. J. (2009) Recht op een bankrekening. Vermogensrechtelijke Analyses(1), pp. 3–22.

  159. Commission, Directive on payment accounts—Factsheet 3, Access to payment accounts.

  160. Ibid.

  161. Article 16 Directive 2014/92/EU of the European Parliament and of the Council of 23 July 2014 on the comparability of fees related to payment accounts, payment account switching and access to payment accounts with basic features.

  162. Ampudia and Ehrmann (2017), n. 76, p. 21.

  163. Preamble 9, Directive 2014/92/EU of the European Parliament and of the Council of 23 July 2014 on the comparability of fees related to payment accounts, payment account switching and access to payment accounts with basic features.

  164. Ibid.

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    A. M. Mooij

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Mooij, A.M. A digital euro for everyone: Can the European System of Central Banks introduce general purpose CBDC as part of its economic mandate?. J Bank Regul 24, 89–104 (2023). https://doi.org/10.1057/s41261-021-00186-w

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