The digital euro will serve as a complement to cash, not a replacement, and is designed to preserve the stability of the financial system while embracing innovation, said Stelios Georgakis, Director General of the Directorate General Payments at the Central Bank of Cyprus (CBC).
In a detailed commentary, Georgakis explained that the digital euro is a central bank-issued digital currency from the European Central Bank and Eurozone national central banks, including the Central Bank of Cyprus, aiming to guarantee “access to a safe, universally accepted form of money in an increasingly digital world”.
He warned that the rise of crypto-assets and big tech platforms is altering the competitive landscape and eroding the traditional role of banks.
“If central banks were to overlook such potentially disruptive developments, we may likely witness an oligopoly of private issuers,” he said.
To avoid such outcomes and safeguard the role of banks, the Eurosystem is implementing strict measures including caps on individual digital euro holdings.
These limits, Georgakis noted, will be based on three core pillars. These include usability, monetary policy, and financial stability.
“The Eurosystem recognises the importance financial intermediaries currently play in facilitating payments and transactions and for the allocation of credit to firms and households,” he said.
“These roles, along with the provision of liquidity through deposits, will remain essential with the introduction of the digital euro.”
According to Georgakis, the holding limits will not hinder consumers’ ability to make payments.
“Consumers will still be able to execute digital euro transactions exceeding the holding limit through linking their digital euro wallets to a payment account with a financial intermediary, thereby eliminating the need to hold positive digital euro balances at all,” he explained.
He pointed out that while enabled to accept digital euro payments, merchants will not be permitted to hold balances in digital euro, which Georgakis stressed would help maintain the integrity of corporate deposits within the banking system.
“The digital euro is being designed as a payment instrument and not an investment means or a savings product,” he added.
He also addressed concerns that digital euro adoption could threaten banks’ funding models.
“Thanks to the mitigation measures that are thoroughly investigated, the digital euro is not expected to be a significant source of concern for banks’ funding,” he said.
“Besides, banks always have the option to increase remuneration rates to avoid losing deposits as a source of refinancing in the long term.”
Furthermore, Georgakis said that the digital euro would be distributed to the public via supervised banks and non-banks, without altering existing customer relationships.
“Intermediaries would have economic incentives to distribute the digital euro through a fair compensation model, the functioning of which will be legally enforced,” he said.
He emphasised that this new infrastructure could create new revenue streams for intermediaries.
“The digital euro would open a new source of revenue for intermediaries to provide value-added services to their customers, such as recurring payments for bills or digital service subscriptions, or pay-per-use enabled via pre-authorisation,” he said.
He also stressed the Central Bank of Cyprus’s proactive engagement with stakeholders to ensure a seamless rollout.
“We address the public at large with speeches, articles and interviews, but also directly with the intermediaries through focus sessions addressed to the National Payments Committee,” Georgakis said.
“These initiatives foster transparency, cooperation, and a shared commitment to a smooth and effective integration of the digital euro.”
He added that the Central Bank of Cyprus is encouraging innovation through partnerships, with one of the island’s largest banks participating in the ECB’s innovation platform.
What is more, Georgakis urged all stakeholders to stay informed through reliable sources.
“We encourage our market to be informed by reliable sources, namely from the communication channels of the European Central Bank and the Central Bank of Cyprus and by a continued open dialogue,” he concluded.