Cash, digital euro, crypto-assets: what lies ahead?

A conversation with Fabio Panetta, Governor of Banca d'Italia, at a lead-up event to the Festival dell'Economia in Trento

What does the future of euro cash look like and what changes will the digital euro bring to the public?

This question came from a student wondering what will happen to banknotes and coins at a time when payment cards and other means of electronic payment are increasingly popular and preparations for the introduction of the digital euro are under way. As the Governor made clear, euro cash will continue to exist: the central banks of the euro area, which produce the banknotes, have a strategy in place to ensure that euro cash remains widely available and are already developing the new series of euro banknotes. The digital euro will not replace cash, it will complement it.

Cash has unique characteristics that no digital means of payment has. As the Governor pointed out, its main feature has to do with consumer privacy: unlike digital payments, cash does not require any payment intermediaries to handle the transaction and, thus, receive any related information - such as how much you spend and on what - which might be used by those wanting to sell products and services to you.

And what about the digital euro? It would clearly be a digital tool, but it would respect your privacy thanks to offline payments that would be cash-like and untraceable by the central banks that issue it. Offline payments would offer the same level of privacy as banknotes and coins. Online payments, would also ensure consumer privacy because the issuing central banks would not be able to trace back a transaction to a specific payer. The purpose of the digital euro, as the Governor explained, is precisely to enable consumers to pay digitally with greater security and privacy guarantees than those provided by the private sector alternatives currently in use.

Are crypto-assets a risk or an opportunity for the economy?

There are thousands of crypto-assets in the world, with very different features and levels of risk. Some of these might play a role in the economy, provided they have built-in safeguards for investors. As an example, the Governor mentioned 'stablecoins' because their value is backed by a portfolio of underlying assets.

However, as the Governor explained, not even the safest stablecoins qualify as money, unlike official currencies such as the euro. Why? Because the value of these crypto-assets is linked to that of the underlying assets and, therefore, can still fluctuate, which is not a desirable feature of any means of payment. Taking a €100 deposit as an example, this means that its worth would be €100 one day, but €101 or €99 the next day.

In addition, unlike stablecoins, many crypto-assets are not backed by anything at all. They are cryptographic records with no intrinsic value. They are a 'pure gamble', the Governor said - merely speculative instruments with a value that fluctuates considerably. Bitcoin is an example of these.

There is only one means of payment that guarantees nominal value stability, the Governor concluded: public money. For us, that means the euro, issued by the European Central Bank, which in the future might also be available to the public in digital form.

How can we navigate financial information?

Understanding financial news that affects us directly - such as updates on inflation and interest rates - is important for managing money well, and Banca d'Italia helps us do so. As the Governor reminded us, one of Banca d'Italia's tasks is to promote financial literacy, which is essential for making secure payments, saving when possible, borrowing responsibly, and investing while limiting risks.

Our central bank carries out many financial education initiatives, some of which cater to the general public. For example, as the Governor explained, Banca d'Italia often appears in national television programmes to explain how to protect savings from inflation, avoid online scams, and much more. It also has a dedicated website, called 'Economics for everyone', where it explains financial concepts, ranging from basic principles to more complex issues.

Other initiatives, instead, target specific groups, e.g. women, small business owners, people that are struggling financially, and students of all ages and education levels. The information shared by Banca d'Italia, in fact, is important not only for adults but also for young people who, the Governor said, will need it down the line to manage their money, make investments, take out a mortgage, and save for retirement to supplement their public pension.