European lawmakers are expressing concerns regarding the European Central Bank’s (ECB) digital euro initiative following a significant outage in the ECB’s existing payment system. This event disrupted the Target 2 (T2) payment system last month, resulting in delays for numerous households and traders.
The breakdown hindered banks’ ability to settle transactions for nearly an entire day, a situation that was exacerbated by an incorrect initial diagnosis from central bank technicians. Members from four of the eight groups within the European Parliament have raised doubts about the ECB’s capacity to effectively execute the digital euro project.
This initiative aims to introduce a new payment system accessible to all eurozone residents. Markus Ferber of the European People’s Party, the largest parliamentary group, stated, “This instance is a blow to the ECB’s credibility,” emphasizing that it raises valid questions regarding the ECB’s capability to manage a digital currency when its existing operations are not running smoothly.
An ECB spokesperson countered these concerns by noting that the digital euro would be more akin to the reliable instant payment system TIPS, operational around the clock and managing millions of small transactions daily, rather than T2, which handles fewer but larger transactions. Notably, TIPS experienced only minor delays during the recent outage.
Despite the assurances from the ECB, apprehension among lawmakers poses a significant obstacle, as their support is crucial for passing the necessary legislation for the digital euro. The European Commission proposed this legislation back in June 2023, but progress has stagnated due to skepticism from certain lawmakers and bankers.
Rasmus Andresen from the Green Party stressed that the central bank must restore public trust to prevent the digital euro from facing potential failure. Other politicians echoed similar sentiments, urging the ECB to refine its systems before proceeding.
The digital euro is envisioned as an electronic wallet secured by the central bank, facilitated through various entities such as banks. It aims to respond to market pressures, including competition from cryptocurrencies like stablecoins.
Despite the potential benefits, bankers remain cautious, worrying about the impact on their liquidity if consumers move funds into ECB-backed wallets. The ECB aspires to have the legislative framework in place by autumn to push forward with the project.