The digital euro would not be a threat to the role of banks as financial intermediaries, Constantinos Herodotou, Governor of the Central Bank of Cyprus (CBC) and ECB Governing Council member, has said, stressing that the digital euro will be issued and guaranteed by the ECB and not at the level of the member state.

Addressing the at the 29th Annual Christmas Gala of the Hellenic Bankers Association UK in London, Herodotou referred to the challenge of digitization and technology, stressing that “it is crucial for financial institutions to keep abreast with technological developments in an increasingly competitive and saturated environment, in which banks, fintechs, big-techs and third-party service providers, co-exist.”

Noting that we must not be against evolution, the CBC Governor pointed out that “certain developments might lead to instability and confusion about what is money and what is not money.”

He cited examples of crypto-assets such as stablecoins noting that “stablecoins are often not backed by any reserves to be considered as a currency, but rather seek to maintain a stable value through algorithms or protocols.”

Furthermore, Herodotou referred to the ECB undertaking over a digital euro, noting that “the digital euro will be inclusive, serving 347 million people in the euro area. A free of charge and truly European solution for day-to-day payments: online, in shops or from person-to-person, with usability and accessibility everywhere. It would offer high privacy levels and offline use.”

“Nowadays, no other means of payment offers all these characteristics at once,” Herodotou went on to say, noting that “ultimately, trust in the digital euro will be the same as in cash, of equal value to the cash euro, as it will be issued and guaranteed by the ECB and not at the level of the member state, thereby distinguishing it from a typical bank deposit.”

Moreover, Herodotou assured that the digital euro would not be a threat to the role of banks as financial intermediaries.

“The remuneration and quantity constraints per person, would stop the digital euro from competing with banks for deposits,” he said, pointing out that banks could and should constitute an integral part of the digital euro payment solution, through for example their front-end services, as the central bank will not interact directly with end-users.

Concluding, Herodotou added that a digital euro “would also contribute to Europe’s strategic autonomy, by providing payment service providers a platform for innovation, immediately scalable at European level.”