The future of digital retail payments in Europe: A place for digital cash?

Abstract

This paper provides a perspective on the potential for central bank issued digital cash as a complementary retail payment tool for Europe. The research approach begins with a comparison of different types of money and their respective characteristics, including both traditional forms of money and private digital currencies such as Bitcoin. Against this backdrop and as an extension of the European Central Bank’s categorisation of forms of central bank issued cash, the paper elaborates the case for a central bank issued digital cash equivalent, labelled ‘d-cash’. Key questions ranging from the involvement of banks and non-bank payment service providers, to anonymity versus transparency and the role for consumer protection in d-cash are discussed. Following this theoretical analysis, the paper provides an overview of the current evolution of retail payments in Europe. The combination of infrastructure enhancements, regulatory change and technological innovations is poised to deliver more innovative services and bring more competition into the payments space. Depending on how these changes unfold over the coming years, European retail payments may be able to stand the competition with private digital currencies when it comes to payments. However, in the context of the substantial cash usage in Europe, which represents significant costs to society, the idea of introducing d-cash should be explored further.