Money in the digital era

Blog post by Fabio Panetta, Member of the Executive Board of the ECB

Frankfurt am Main, 2 December 2020

Since the times of ancient Greece money has been virtually synonymous with cash: coins and later banknotes have provided people with an efficient and widely accepted means of payment for their everyday transactions.

In recent years, however, the digital revolution has led people to significantly change their payment habits – tapping a card, swiping a phone, or using a smartwatch to pay is becoming increasingly common.

A new study on the payment attitudes of consumers in the euro area (SPACE) conducted by the European Central Bank and national central banks reveals that almost half of euro area adults now prefer to pay digitally, and this trend appears to have accelerated further during the coronavirus (COVID-19) pandemic. While cash is still the most frequently used means of payment for in-person transactions, its share is decreasing. For remote purchases, cards and e-payments are the solutions of choice. And direct debits or credit transfers are the most common way of paying bills.

This contrasting evidence suggests that none of the means of payment currently available meets all consumer needs. This underlines the importance of continuing to give people a choice in how they pay, without compromising their expectations of fast, secure, low-cost and easy-to-use payments. Indeed, cash and digital money can be seen as mutually complementary: their coexistence offers greater choice and easier access to simple ways of paying for all groups in society, ensuring a high degree of inclusion and resilience in payments.

Digital money goes hand-in-hand with the digitalisation of the economy: it supports the growth of e-commerce and connected lifestyles, and satisfies people’s demand for immediacy and seamless integration between payments and digital services.

But even if digital payments are designed to be as robust as possible, they remain vulnerable to disruptions, such as power blackouts, cyber threats and technical failures. In such situations, cash can support resilience in payments: owing to its unique features, it provides a crucial backstop and a trusted store of value. Our payment survey shows that 34% of euro area citizens keep extra cash reserves at home for precautionary reasons.

Cash is also inclusive. A particular concern with digital payments is that, if they become the norm, citizens who are unable or unwilling – for example for privacy reasons – to use such services risk being excluded from the economy. Our payment survey reveals that cash is regularly used by citizens of all ages, all educational levels and all income groups. Moreover, cash is essential to ensure the inclusion of socially vulnerable citizens who may not have bank accounts or who lack the necessary digital skills. This highlights the need to maintain the smooth functioning of the cash cycle, including easy access to cash and wide acceptance of cash at points of sale. We therefore remain firmly committed to ensuring that cash remains widely available and accepted across the euro area.

At the same time, as consumers and private money go digital, sovereign money also needs to be reinvented so that the public good it provides remains fully available in the digital era. We therefore need to be ready to issue a digital equivalent to banknotes, should the need arise. A digital euro would complement cash: together they would offer access to simple, costless ways of paying. A digital euro would also be designed to be interoperable with private payment solutions, facilitating the provision of pan-European solutions and additional services to consumers. And the protection of privacy will be a key priority, so that the digital euro can help maintain trust in payments in the digital age. To further understand end users’ needs and concerns, we are inviting feedback from everyone as part of our ongoing public consultation on a digital euro.

Digitalisation has the potential to revolutionise payments. However, it is important that European households and businesses still have a choice. We are therefore working to ensure that a public, simple, costless and safe option remains available in all circumstances.