Institute of International Finance

The Institute of International Finance (IIF), a global lobbying organization for the financial sector, has assessed the European Commission’s suggested legislation with reference to the digital euro. The review sheds light on the benefits and drawbacks of the proposal.

IIF’s Evaluation of Digital Euro Legislation

The IIF evaluated the European Commission’s June introduction of the digital euro legislation and the impact assessment that went along with it. The IIF, which has offices in 60 countries, evaluated the proposed legislation in seven important areas.

Six of these categories were only “partially addressed” by the proposed law, according to the IIF’s evaluation. The law included several positive aspects, but there were also some significant holes and ambiguities.

Challenges in Ensuring Financial Stability

The method suggested for safeguarding financial stability and bank intermediation, notably the usage of holding restrictions, was one crucial area of concern emphasized by the IIF. The IIF stated that these restrictions had not been established, and it was still not apparent how they would be properly applied.

Cost-Benefit Analysis and Economic Challenges

The cost-benefit analysis that is offered in the law has also been criticized by the IIF as being “basic and high-level.” It also noted that price limitations and requirements for credit institutions to offer fundamental digital euro services gratis would make it difficult for payment services providers (PSPs) to recoup the expenses of deploying digital euro services. These issues with the economic and liability models were thought to be only partially resolved.

Privacy, Anti-Money Laundering, and Cybersecurity Concerns

A topic that needs further clarification is privacy protections for the digital euro. The IIF stated that it was still unknown what steps PSPs would need to take in order to comply with these privacy rules and if doing so would be practical for them to take at the time of the launch of the digital euro. The legislation also lacked specificity on cybersecurity and anti-money laundering measures.

Governance and Interoperability Issues

The IIF emphasized that the legislation was insufficient in its treatment of governance and conflicts of interest. It sparked questions over the European Central Bank’s (ECB) dual responsibilities as a bank regulator and the body in charge of creating and managing the digital euro. It was emphasized that there was no impartial supervision of this possible conflict.

The IIF also stressed the value of interoperability in the digital currency industry, warning that setting up parallel systems may be expensive and ineffective. It emphasized the requirement that the digital euro work on systems that support other digital currencies.

The Path Forward for the Digital Euro

The infrastructure for the digital euro is being constructed at the same time as the legislative proposal. The investigation phase for the digital euro is now underway and is supposed to go through October. The ECB may then start evaluating business and technical options. The live issuing of the digital euro, however, cannot take place until the law is approved.

The IIF’s review sheds important light on the intricacies and difficulties surrounding the digital euro and identifies areas in need of more study and improvement.