IIF Reviews European Digital Euro Legislation: Key Findings

Overview of the Assessment

The Institute of International Finance (IIF) has taken a long, hard look at the European Commission’s proposed regulation for the digital euro. Spoiler alert: it didn’t earn an A+.

Methodology of the Evaluation

The assessment evaluated seven key areas of the digital euro legislation. Out of these, a whopping six were rated as only “partly addressed.” Think of it as a student who showed up but didn’t do the homework with enough enthusiasm.

Cost-Benefit Analysis: The IIF described this part as “basic and high-level.” In layman’s terms: it wasn’t deep enough to earn extra credit.
Financial Stability and Intermediation: The proposed holding limits are still floating in the air without concrete figures and enforcement strategies.
Regulatory Capabilities: Payment services providers (PSPs) face challenges that sound a bit like trying to bake a cake with half the ingredients missing.

PSPs and Their Struggles

PSPs are expected to build nifty digital euro services, but guess what? They can’t charge much for it. Picture trying to run a business while being told you can only sell lemonade for a quarter. The mandated provision of free services by credit institutions adds to this dilemma.

Privacy and Security Measures

One glaring hole identified by the IIF lies in privacy protocols. There’s a huge cloud of uncertainty regarding what PSPs must do to comply with future regulations. Cybersecurity measures are yet to materialize, leaving many with more questions than answers.

Governance: A Conflict of Interest?

The IIF raised a red flag on governance structures, suggesting potential conflicts for the European Central Bank (ECB), which wears multiple hats as regulator, issuer, and fee-setter. You wouldn’t want your principal to also be the one grading your assignments, right?

The Future of the Digital Euro

While the legislative process is ongoing, and the ECB mulls over technical solutions, a live digital euro remains on the horizon, contingent on successful legislation. It’s in the exploratory phase until at least October. Let’s just say, it’s a work in progress.