One Euro Is One Euro: Preserving the Singleness of Money in a Digital Age

Good afternoon. I don’t know where you had breakfast this morning? Many of you in the hotel, I guess. Some of you may have bought something on your way to the conference. With that in mind, let’s imagine you go to the bakery to buy a croissant or a sandwich.

The payment terminal on the counter shows three different stickers. ‘How do you want to pay today, sir?’ says the baker. ‘With your old-fashioned bank wallet, with cool euro or with new libras? The new libra dropped overnight. It is now 1,15 for an ordinary euro. We haven’t adapted our prices yet, so that seems rather favourable. Even if you include the usual fixed fee.’ ‘I don’t have a libra wallet’, you reply, ‘so it will have to be in ordinary euro or cool euro’. The baker frowns. ‘I wouldn’t recommend cool euro if you are not separately insured for counterparty risk. You can also pay with ‘buy now, settle later’, but you will have to hedge your settlement risk because settlement will not be final until next week.’

You nod and hold your phone next to the payment terminal. It makes the familiar ‘ordinary euro’ beep as a sign that you have paid. You leave the bakery with your breakfast, still slightly confused.

Ladies and gentlemen,

Thank goodness this is not reality. It would be a true payments dystopia. Not only a nightmare for central bankers like me, but also a true pain for you and, basically, for everyone.

What I have just shown you is a glimpse of a world of payment fragmentation. A world in which the value of a euro depends on the payment method and the institution that issued it. Thankfully, it is a hypothetical situation, one that is not very likely to become reality. At least, not if I can help it. The reason I painted this picture for you is rather to point out that the efficient money system we have, the system that preserves the singleness of money, in which one euro is one euro whatever the form or issuer, that this system cannot be taken for granted.

In fact, the concept of a single dominant currency in a country is historically more the exception than the rule. And indeed, it is only relatively new in the history of payments. The period of the Dutch Republic, roughly the 17th and 18th centuries, provides a fascinating example. At that time, several hundreds of different gold and silver coin types were in circulation.

This created obvious practical problems. Coins differed in weight and precious-metal content. Some were worn down through use. Exchange rates were in a constant state of flux, and merchants had to perform endless currency conversions.

It was only after the establishment of De Nederlandsche Bank in 1814, and the introduction of the modern Dutch guilder two years later, that the Dutch money system gradually became more uniform.

Today, although that uniformity is currently not in question, we do find ourselves in a period of rapid monetary innovation. New technologies are creating new expressions of money, allowing new ways of paying. Notably, digitalisation and tokenisation are paving the way for a whole new range of exciting new possibilities.

In general, central banks like DNB support these developments. Because we recognise that technological development is a key driver of economic and financial development. Believe me, we central bankers can be as excited about the future as you are.

But obviously, as guardians of monetary and financial stability, we want these new forms of money and payments to be safe and sound. That is also in your best interest. Because without stability, there is no trust. And without trust, there is no use case.

One of the particular questions that arise as new forms of money are entering the stage, is how can we make sure that the payment landscape does not get too fragmented and that, indeed, the singleness of money will be preserved?

You must have noticed that I almost casually introduced central banks into the story. Of course, I did that on purpose. In a modern monetary system, central banks have an important role in maintaining stability, unity and efficiency. How does that work, and what does that small but magical word ‘trust’ have to do with it?

Ok, it's time for a very quick primer on money. What is money? Put 10 experts in a room and they will come up with 10 different answers. But in essence, their answers will all come down to the same thing: money is an agreement, a social convention. Something is money if we all agree that it is so. That is why money has taken all kinds of shapes and forms throughout history. And that is why money cannot function without trust. If you have to pay me, I will only accept your payment as money if I can trust that you and you and you will also accept it as money.

Trust partly comes with convention. But convention alone is not enough. Throughout history, trust in money has been underpinned in various ways. Through the use of precious metals for example. In a system based on fiat money, where there is no relation between the value of money and the worth of its material, rules and institutions become important. Take punishments for counterfeiting for example. And in our modern system of deposit money, where most money is created by commercial banks as digital deposits on their balance sheet, these rules and institutions have become very important. Think of bank supervision and deposit guarantee systems.

However, and I think this is an important point, for all the rules and institutions to support the stability of banks, we would not trust their money if it weren’t for the existence of central bank money.

History teaches us that private money can be a driver of innovation, but that it cannot preserve its unity by itself. In normal times, claims issued by different banks may all trade as one euro. But under stress, people start to distinguish between issuers and question whether every claim can still be converted at face value. What looked like one form of money can then break down into safer and less safe euros. The lesson is not that central banks should issue all money, but that private money needs a credible public anchor to remain interchangeable at par.

Central bank money provides that anchor in two connected ways. It is the safest monetary asset in the system, against which other forms of money can be redeemed. And it is the settlement asset through which banks and financial market infrastructures can discharge their obligations to one another.

That also helps define the central bank’s role. We should not crowd out private initiative or prescribe a single technology. Competition between banks, payment firms and new platforms can improve services and drive innovation. But the central bank must preserve the common foundation on which that competition rests: convertibility at par and access to safe settlement. The challenge in a digital and tokenised economy is therefore not to replace private money, but to ensure that innovation remains connected to this public anchor. This is true for both retail and wholesale payments. To make this technically possible is what central banks are working on at the moment.

Let me start with wholesale payments, since this probably relates best to the world you operate in.

Let’s take tokenised financial assets. These are assets that can be represented in the form of digital tokens on a distributed ledger. Although it seems promising for the future, the scale of tokenised financial assets is still quite small. One of the most likely reasons for that is a lack of trust in stablecoins and tokenised deposits as settlement assets, especially among financial institutions. For these initiatives to take off, it must be possible to settle tokenised assets in the safest way possible, and that means settlement in central bank money.

This is precisely why the central banks in the Eurosystem are working together on ways to make settlement in central bank money possible in tokenised environments. We call this wholesale central bank digital currency, or wholesale CBDC. This is not an entirely new development, however. Financial institutions already settle in central bank money every day using traditional technologies. What changes here is the technology layer, not the fundamental objective.

The Eurosystem’s exploratory work in 2024 showed clear market demand. And I think it will be very interesting to hear what Valerio Jacobi and Bert Staufenbiel have to say later this afternoon about real-world use cases for wholesale CBDC.

The Eurosystem is now moving from preparation to implementation. It will be mostly banks going live first. Pontes is the short-term bridge solution between the traditional central bank money settlement world and emerging DLT platforms. Pontes, Latin for bridges, has recently gone live with 18 participants, including 14 market participants and 4 DLT operators. This first wave of live participants will be followed by additional onboarding in the months thereafter, including Dutch market participants that are currently preparing their connection to the platform. For the first time, tokenised transactions will be settled in central bank money within a live Eurosystem environment.

Looking beyond the initial launch, the Eurosystem is also exploring longer-term options through Appia, an initiative that examines how tokenised assets and different forms of money could interact more efficiently within the European financial ecosystem.

Apart from the technical side, we are also working to strengthen the legal basis for transactions involving tokenised assets. Although current laws do not prohibit tokenisation, we think this innovation could benefit from a more robust legal underpinning. We reached this conclusion together with the AFM, the Authority on the Financial Markets, and you can read it in our joint brochure which was published on 7 October. As a next step, we are going to explore which legal solutions are the most promising and how they can be put into practice. We will do this in collaboration with external experts, government ministries and market participants.

Now let’s turn to retail payments. In most developed economies, most retail payments are made electronically, so using commercial bank money. Cash payments account for an ever-smaller share of total retail payments. In my country, cash payments have even dropped to less than 20 percent. This means the role of central bank money in retail payments is getting smaller and smaller and might all but disappear. Central banks and governments have concluded that this would be an undesirable situation. That is why they are taking steps to ensure people continue to have access to a form of central bank money for making payments. There are two reasons for this.

First, it helps sustain trust in our money itself, because citizens repeatedly demonstrate a preference for the security and certainty of central bank money during periods of financial stress or heightened uncertainty.

Second, digital payments markets are shaped by strong network effects, where scale can generate concentration and dependence on a small number of private providers. This is the case in Europe. In addition, most of these private providers are non-European, which in the current geopolitical situation creates added risk. The EU’s aim for more strategic autonomy means we should not rely exclusively on actors outside Europe for a critical function such as payments. I’m sure that will also be a topic during the panel discussion that comes next.

That is why the Eurosystem is working on a digital euro. The digital euro can best be seen as a banknote in digital form. Just like cash, the digital euro would serve public needs such as privacy, a fallback option and inclusivity in an increasingly digital economy. It would provide a common public foundation, while leaving ample room for private innovation and private means of payment.

I am wrapping up. I hope that I have been able to convince you that central bank money is and should remain the bedrock of our monetary system. A bedrock, on which private innovation can grow and flourish. This combination gives us the best chance of achieving progress and maintaining trust. Therefore, be it in retail or wholesale payments, central banks are working to make payments and settlement in central bank money possible in new digital environments.

But we cannot do it alone. The smooth co-existence of various forms of money requires more than just settlement in central bank money. It also requires that payment systems and financial markets work together seamlessly, preferably on a global scale. We call this interoperability, and I think Lorenzo Cremona already referred to that this morning.

It requires complex decisions about legal frameworks, code governance, liquidity backstops, and other factors. To say that this will be a challenge is an understatement. Especially in the current international political climate. But we need to make progress. Because as money takes more different forms and shapes, these policy choices will determine whether it will strengthen or fragment the financial system.

At the start of my speech, I tried to visualise for you what a fragmented payment landscape could look like. That is not the future we want. Even if by then you would also be able to buy your breakfast with digital euro.

Call it ‘old-fashioned’, but paying should not be risky and complicated, but safe and simple. Especially for something as ordinary as buying a sandwich.