In a recent address at the 29th Annual Christmas Gala of the Hellenic Bankers Association UK in London, Constantinos Herodotou, Governor of the Central Bank of Cyprus (CBC) and member of the ECB Governing Council, clarified the role of the digital euro in the banking sector. He emphasized that the digital euro, guaranteed by the European Central Bank (ECB) and not individual member states, poses no threat to the role of banks as financial intermediaries.

Herodotou highlighted the challenges and opportunities brought by digitization and technological advancements, underscoring the necessity for financial institutions to stay updated in a competitive environment where banks, fintechs, big-techs, and third-party service providers coexist.

Addressing concerns about the evolution of digital currencies, Herodotou pointed out that certain developments could lead to instability and confusion about the definition of money, citing the example of crypto-assets like stablecoins. He noted that stablecoins often lack the reserve backing required to be considered a currency and instead attempt to maintain a stable value through algorithms or protocols.

Discussing the ECB's initiative for a digital euro, Herodotou described it as an inclusive solution for 347 million people in the euro area, offering a free, universally accessible, and truly European method for daily payments, whether online, in stores, or person-to-person. The digital euro, he explained, would provide high privacy levels, offline usability, and trustworthiness equivalent to cash, setting it apart from typical bank deposits.

Herodotou reassured that the digital euro would complement rather than compete with the banking sector. He explained that limitations on remuneration and quantity per person would prevent the digital euro from challenging banks for deposits. Furthermore, he suggested that banks could be integral to the digital euro payment solution through their front-end services, as the central bank will not interact directly with end-users.

Herodotou also stated that the digital euro would enhance Europe's strategic autonomy by offering payment service providers a platform for innovation that is immediately scalable at a European level.