Insight & Analysis

A digital euro and the implications for treasury

Published: Feb 2021

The ECB is mid-way through a consultation exploring the concept of a digital euro. It could herald much faster interbank settlement rates and impact cross border remittances, while experts predict its use in wholesale payments and capital market transactions too. Reasons for caution include privacy, while traditional banks may struggle to integrate the currency.

A euro sign on a digital display

The European Central Bank is mid-way through a six-month consultation examining the case for creating a digital euro. The introduction of an electronic form of central bank money accessible to all citizens and companies reflects the ECB’s bid to stay ahead in the fast-changing world of digital currencies and payments and could have important implications for treasury.

The consultation (together with 19 national euro area central banks) is a consequence of increased demand for risk free electronic payments in the euro area, a significant decline in the use of cash as a means of payment and worries about a cyber-attack or pandemic disrupting existing forms of payment. Moreover, other central banks are stealing a march when it comes to developing Central Bank Digital Currencies (CBDCs) like Sweden’s Riksbank, the Swiss National Bank and the People’s Bank of China. All the while a recent World Economic Forum survey predicts that 10% of global GDP will be stored in digital assets as early as 2027.

“We are in relatively early days. Important details need to be worked out and there is no commitment from ECB to even introduce a digital euro,” cautions Martin Walker, Banking and Finance Director at the Centre for Evidence-Based Management, who predicts consumer take-up could be highest in countries like Germany where people are still “heavy users” of cash.

Settlement times

For corporates, the most noticeable impact from CBDC adoption would be “drastically reduced” times for inter-bank settlement processes and settlement times between banks and larger intermediaries, predicts Luke Sully, CEO of Ledgermatic, a digital treasury management system launching in early Q2, where software will allow users to manage traditional and digital assets together to unlock liquidity from both types of assets through one portal.

He eyes exciting opportunities for nimble fintechs in CBDC’s introduction. “Banks may be slow to extend other advantages of CBDC directly to account holders as they analyse how to retain market share against smaller, nimble fintechs encroaching on parts of their business,” he predicts, adding that faster payment rails built on top of CBDC is an example where the market will see fierce competition with ensuing corporate benefits.

Indeed, treasury teams may find themselves squeezed between faster CBDC-based payment rails and a legacy banking infrastructure that may not immediately be equal to this, he continues. “Companies conducting business in CBDC’s may find their existing commercial banks are incompatible for their financing needs and start to use intermediaries like Legermatic to distribute the currency. The balkanisation of financial systems, as we are seeing in PRC and Russia will be further exacerbated by this initiative.”


Cross border remittances are probably where CBDC’s will force the greatest change. A CBDC based on tried and trusted technology is likely to be a relatively cost-effective alternative to some existing forms of payments, agrees Walker. “If CBDCs do take off, it will help companies accelerate the movement away from physical cash and could significantly reduce costs. More broadly, outside the Eurozone and for cross-border business there is potential for wider use of central bank money in wholesale payments and capital markets,” he says. Elsewhere it could also weaken the dollar’s dominance as the main clearing currency for international payments if other central banks agree to process cross-border payments directly by swapping digital currencies – an idea outlined in a recent ECB report.


Experts flag that in a financial crisis people may shift money out of commercial banks into a haven digital currency backed by the ECB. Other concerns include savers seeing more benefit from holding digital euros than depositing their money with banks, reducing banks’ funding ability.

Privacy issues about CBDCs still need to be addressed. “An all-digital ledger has the potential to give governments an accurate time-series log of any company’s transactions down to the cent,” warns Sully. Additionally, and unlike cryptocurrencies, governments are also requesting that architects design CBDCs with the ability to cancel or roll-back transactions on the order of authority, he says, warning that both the visibility and the control over transactions represent a significant expansion of government and agency powers over private financial activity. “Businesses and standards bodies must be included to help evaluate what kinds of checks and balances will be used to authorise the use of these powers, and to also monitor and detect their potential for abuse.”

“An enforced movement from physical cash to CBDC could have a negative impact on consumers that value their privacy in making transactions and hence the companies supplying them. In countries where debit cards are not so well established, a cost effective CBDC could eat into the revenues of credit card companies,” concludes Walker.

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