Digital Euro: An assessment of the first two progress reports

The two progress reports provide an insightful overview over some of the thinking underlying the digital euro project. The reports remain vague in some respects, which is not surprising given the early
stage of the project and the division of tasks between the ECB and the Commission.

The first report suggests that the digital euro can help preserve public money as the anchor of the payment system, but it does not explain how the decline in cash use endangers the anchor role or how
a digital euro would mitigate the associated risks. It motivates the digital euro as contributing to Europe’s strategic autonomy, but does not clarify whether the autonomy concerns nationalsecurity,
cheaper payment services, or monetary sovereignty, and why either of these would suggest a focus on consumers rather than business users. More generally, the report discusses few economic motives for
a digital euro in depth and this raises doubts about the proper sequencing of design choices.Some arguments for privacy restrictions are not fully convincing. The most important shortcoming of the first report is the lack of analysis of why digital euro holdings as stores of value are not desirable (or why this issue is beyond discussion) and whether strategies to limit such holdings cause collateral damage.

The second report lacks a discussion of incentive compatibility of the envisioned public-private partnership model. It also lacks detail on the proposed settlement, funding and defunding models and
on the incidence of the payment scheme’s costs. The reports do not discuss implications for central bank balance sheets, interest rates, political interference, and the ECB’s mandate to introduce a digital euro.