The Digital Euro, Payments Re-Intermediation and the Structural Power of Banks

The European Central Bank is fully focused on its new flagship project, the introduction of the digital euro, i.e. ‘a digital form of cash, issued by the central bank and available to everyone in the euro area’ (ECB, 2024). While Central Bank Digital Currencies are currently explored by many central banks, the digital euro would be the only multinational currency and the only currency without a state supporting it. And indeed the stateless nature of the euro has been the subject of much analysis (Otero, 2015; Padoa-Schioppa, 2004). The ECB pushed hard for a digital euro when other central banks in the world only monitor CBDC developments. A key controversial point of the digital euro creation is its impact on the reconfiguration of the digital payments actor constellation. In other words, the creation of a public digital currency will redraw the boundaries between public and private actors in payments intermediation. In this context the paper will answer the following question: did private banks capture the digital euro project in order to regain market shares in digital payments in the euro area? This article will unpack the key features of the digital euro and will focus on the institutional leadership exercised by the European Central Bank to pursue such a project as a policy entrepreneur, in the context of conflicting private interests. Based on press analysis and the systematic retracing of industry positions (e.g. EBF, 2023) as well as selected élite interviews it will uncover the crucial factors and conditions that led the European Central Bank to propose the controversial private bank enabling features (i.e. low digital wallet holdings and the so called waterfall functionality) of the digital euro. At theoretical level the article will rely on the literature on structural power which was notably applied to the banking sector by Culpepper and Reinke (2014) but not yet in a new market landscape that sees incumbents such as large banks and newcomers such as Fintech payment providers compete for market segments. References • Culpepper, Pepper D. and Raphael Reinke (2014) “Structural Power and Bank Bailouts in the United Kingdom and the United States.” Politics & Society 42 (4): 427–454. • EBF – European Banking Federation (2023), https://www.ebf.eu/wp-content/uploads/2023/03/EBF-Digital-Euro-paper-2023_final.pdf • European Central Bank (2024), https://www.ecb.europa.eu/euro/digital_euro/html/index.en.html, Accessed on 17 November 2024. • Otero-Iglesias, M. (2015), Stateless euro: The euro crisis and the revenge of the chartalist theory of money, Journal of Common Market Studies. • Padoa-Schioppa, T. (2004), The Euro and Its Central Bank – Getting United after the Union, MIT Press.