Evelien Witlox: the ECB digital euro project & the power of CBDCs

In recent years, digital technologies and offerings have enjoyed a steady and often dramatic uptake in acceptance, development and importance. With the digital age of finance in full swing, much discussion revolves around digital currencies, namely their economic and social impact, potential and benefits. The development of central bank digital currencies (CBDCs) is at the forefront of this discussion, with a number having been released worldwide and many more currently in development with most governments.

The digital euro, the planned Europe-wide digital currency, is slated for implementation by 2026 and is set to be one of the first and most significant cross-border digital currency projects. Not surprisingly, the topic is expected to be discussed at length during sessions of Sibos 2022. Reason enough to submit some questions to Evelien Witlox, former Global Director of Payments for ING and board member of the European Payments Council. Evelien recently assumed the role of Program Director Digital Euro for the European Central Bank (ECB) in January 2022, with the bank taking the lead in the investigation and development of the digital euro.

We sat with Evelien to discuss the current payments landscape, the importance and impact that the digital euro can have, her role, and the priorities defining progress within the European Central Bank's project.

How has your career developed? What currently drives your interest in the industry?

"My career has spanned roughly 25 years. I initially started as a technical engineer, but soon I moved into the financial sector and eventually to payments, where I have stayed ever since. I could experience how changes in technology and society have also been reflected in the payments industry. Take the internet and, more recently, digitalisation, for example: they have created many challenges and opportunities to the sector. For all these reasons, I continue to find it extremely rewarding to work within, and contribute to the development of, this field.

I'm interested in working closely with my team to explore and develop better ways of payments that serve society. Payments are a core pillar for the functioning of many activities. Therefore, we need to design payment solutions in line with the preferences and needs of users – some of which aren’t even aware of. Questions and challenges such as this have captured my interest and kept me busy."

What does your position with the European Central Bank entail?

" We got the assignment from the Governing Council of the ECB for the digital euro investigation phase in July 2021. Currently, we are running the investigation phase, which will last for two years before we report back to the Governing Council at the end of the third quarter of 2023. The current phase requires us to run assessments and offer advice on whether to transition to the implementation phase, and if so, to draft a plan which also involves the design of the digital euro.

I work with a highly skilled team from the ECB and the National Central Banks, which comprise the Eurosystem. The team is diverse, with people knowledgeable in business models, business architecture and IT - all important aspects to consider in the current phase.

We advise on the digital euro and reflect on the potential design and implementation As programme manager, I also need to make sure that we include all major stakeholders, and design something that benefits them all."

What were some of your priorities in your new role?

“I took up the position at the beginning of January with the team already being well established. I think a good job had already been done. The most important thing for me was the interaction with all stakeholders. This is crucial to listen to all voices. Only in this way can we design the digital euro as well as possible. It's essential to make sure that we combine all the knowledge and capabilities of both, the Eurosystem and in the markets alike,  

It's also important that we design a product that brings value to the user, while offering the monetary anchor that ensures that our central bank money is also present in the digital age.

My focus has been on strategic elements. For instance, we don't aim to become a dominant player; but we want to provide something effective, safe and secure. Innovation is key to further development, so designing in a way that leaves room for market participants to innovate further was and remains a focus.”

Why is the development and introduction of a digital euro important?

"We have to look at how society is changing. In many cases, we see that people increasingly pay electronically because the environment of their payment is only digital. We saw this trend during the COVID-19 pandemic, which forced society to use digital means of payments even more.

We believe having a monetary anchor in the digital era is important. This means that central bank money is also in the digital system available to provide this anchor. We currently have cash, but cash cannot be incorporated into the digital context. Our vision is not to replace cash, but to offer the digital euro alongside banknotes and coins.

Having the digital euro as a monetary anchor means that you can trust that your private money can be converted into digital central bank money, allowing it to be used across the full payment or economic system. The element of trust is essential. By doing this, we can also support another area of importance: the strategic independence and autonomy of Europe. Currently, Europe relies heavily on non-European players for its retail payments ecosystem. We believe it's important to reduce some of this dependence while also growing economic efficiency through the digital euro."

What impact is the digital euro expected to have?

"I think it's important that we view the digital euro as a public good; therefore, it becomes meaningful for the public sector and society.

But we also believe that when you have this public foundation, it can be the basis of innovation within the private sector. However, we need to make sure that these services are reliable and interoperable. With the digital euro, we would have a pan-European bedrock on which this innovation can be based. I think the European Payment Council, EPC, has shown that it's important to have standardised payment means. Hence, we need to make sure that the digital euro can be used on a pan-European scale, harmonised across the euro area from the start. It's important to avoid reconnecting different domestic standards later - this could impact uptake, efficiency and long-term success.

Privacy is another important topic beyond payments. There may be many questions regarding privacy and data, but as central banks adhere strictly to data protection, they will always adhere to the highest level of privacy. This benefit of the digital euro was a highly discussed topic during project consultations.

We will build on some of the already existing regulations, such as General Data Protection Regulation (EU GDPR) if we talk about privacy, but for the ECB to be able to issue a digital euro, further changes to the legislation need to be made, which is already in progress in some areas."

With the digital age here to stay, what should people look out for in the near future?

“Throughout my career I've been dealing with digitalising payments. At the start, cash payments were slowly being supplemented with other payment means. Over time, options such as paying internationally or domestically with credit and debit cards became much more common. Then, of course, the internet came, which has been a source of relentless innovation. Since the dawn of the internet and its rise to prominence, our world has changed immensely. What I find of interest is the interaction between new technology that makes new business models possible. In our case, new and exciting methods of payment.

Technology can make new business models and new business propositions possible. We are seeing that this, in turn, triggers new requirements for different payment needs. The digital world is swiftly evolving. Every time it seems we were entering a stable period, further developments appear on the horizon. The idea of sitting still in the payment world is unlikely to be a realistic approach. Going forward, the landscape is exciting and full of development opportunities. 

Real-time payments will become the new normal. With the introduction of things being 24/7 online, this will become the standard. Innovation within the financial sector goes hand in hand with what society demands. Soon, we will likely see increased usage of machine-to-machine payments and the 'internet of things’. This will bring increased and varying use cases. For instance, at this moment, I can pay directly from my account using a banking app, but in the future, these payments may be delegated to your car or your fridge, depending on the payment.

I also believe that CBDCs will increasingly come into play. Most central banks are working on CBDCs, with some already implementing them in some form. Much like our current phase with the digital euro, many CBDCs are currently in the investigation phase. So, I think going forward this is a development that many are considering, especially with the ability of CBDCs to facilitate cross-border payments."

At the time of publication, the digital euro project, spearheaded by the ECB, is currently in its investigation phase. The digital euro is designed to complement physical currency and act as another option for payments made within the Eurosystem. It is designed to respond to citizens’ and companies’ developing preferences for digital payments and a broader global shift towards cross-border commerce and digitalised services. Much like the digital euro, several other CBDCs are currently in active development around the globe, representing an exciting upcoming period of development, both within business and society at large.