The European Central Bank (ECB) is keen that EU member states engage with the public policy debate around Central Bank Digital Currencies (CBDCs) for the eurozone. In this context, it is reported that the Italian Banking Association is starting a technical feasibility study into using Distributed Ledger Technology (DLT) for a future ‘digital euro’.
There are two streams of work planned and all interested banks are welcome to take part.
The first piece of work is to look at the technical feasibility of creating an effective infrastructure and distribution model. This will be carried out as a collaborative piece of work between ABI LabChain’s infrastructure, which has 100 active nodes across Italy, with the banks that operate using those nodes, and with SIA, an Italian technology company. At the moment the focus of this infrastructure has been as an interbank reconciliation system.
The second work stream focuses on how the CBDC can be differentiated from existing electronic payments. Working groups are being set up to consider a range of user cases. The work will be a collaboration between the banks, NTT Data, PWC and Reply.
Whether to encourage shopping face to face rather than online, to pay digitally rather than with cash or to discourage tax avoidance, in December the Italian government launched what has been called its cashback initiative. People were asked to register on a national IO app. Once registered, if people make an in-store purchase with a payment card or a smartphone app, they get an automatic refund from the state. Online transactions are excluded.
When the scheme was launched, 7.6 million people downloaded the app on the first day. Perhaps unsurprisingly, the sheer volume of requests created a few technical glitches.
The programme was launched on 8 December but was not just a short-term scheme for Christmas; it remains a live programme, although with slightly different conditions for 2021 than in December.
The programme includes purchases in shops, bars, restaurants as well as from craftsmen, and professionals. In December consumers received a 10% refund up to a maximum of €150 on the condition that they make a minimum of 10 purchases with a payment card. After 1 January, the maximum reimbursement is up to €300 for the whole year.
It would appear that the ECB was less happy with this initiative than with the CBDC initiative.
On 14 December Yves Mersch, on his very last day as a member of the ECB’s Executive Board, wrote to the Italian Minister of Economy of Finance. In his letter he said that the ECB considered ‘that introducing a cashback program for electronic means of payment is disproportionate in the light of the potentially adverse impact on the cash payment system that such a mechanism could have and because it undermines the objective of having a neutral approach to the different means of payment available'.
Its concern was that the incentive seemed design to encourage people to make low value transactions using digital payments, which is where cash is usually used.
The initiative appears, therefore, to be targeted against cash. It ‘could push participants to compete for the highest number of transactions carried out, which would ultimately favour participants settling a large number of transactions for small amounts (ie. amounts that could otherwise be paid in coins). In particular, the ‘special cashback’ reimbursement of €1,500 appears to be designed to incentivise the use of electronic payments for small amounts. Any adverse impact of the proposed cashback should therefore be carefully weighed against the anticipated public benefits'. The ECB also pointed out to the Italian government that, ‘national authorities are required to consult the ECB on draft legislative provisions in its fields of competence, including, in particular, on means of payment'.
The ECB’s opinion is not binding and the response of the Italian Treasury was that ‘the formal remarks made by Mersch do not appear to be justified’.
The cashback initiative may also raise questions with the European Commission because it only applies to Italian nationals and not all EU citizens.
