Welcome back to the Atlantic Council at the IMF World Bank annual meetings live from Bangkok, Thailand. I'm Josh Lipsky, chair of international economics at the council, and it is my honor to welcome President Christine Lagarde, president of the European Central Bank, to our stage here in Thailand. President Lagarde, welcome.
Thank you so much. It's lovely to be with you.
So, we will have a discussion about the future of the euro, the digital euro, and we'll talk about wholesale and retail and all the different dimensions of it. But let's start with the retail digital euro project, the original project. And I would just love to hear from you a status update. Where is it? Might we end up seeing some live testing in 2027?
As you speak, I'm crossing my fingers because, as you know, we've been at it for the last five years or so, and we are now reaching the stage where the parliament, the European Parliament, is finishing what we call the trilogue. So it brings together the Commission, the European Council representatives, and the parliament representatives, and these three have to come together with their respective understanding of the legislative architecture, if you will, that will propel the digital euro into reality. So we had to wait until this legislative step is completed, and I have received assurance from my Irish colleague and friend Simon Harris, who is the finance minister of Ireland and also the president of Europe in Ecofin format. I know it sounds all very jargon, but...
So he wants to complete that work before the end of '26. So I'm crossing fingers because it's all in the hands of the three of them: parliament, council, commission. But I have trust in Ireland and the Irish determination and resilience. So I think he's going to take it across the line. And once we have the legislation in place, then we are in a position to actually prepare and launch the pilot of the digital euro, which we plan to hold for 12 months so that we can see, you know, the blips, the hiccups, the things that don't work perfectly well, the, you know, technicalities of it, because when we launch it has to be perfect. It has to be a really positive experience with no hiccups, no, no problem. So we should launch the pilot mid-'27, 12 months, mid-'28 we complete the necessary work, and we are ready to launch for good on a broad basis in '29 across the whole of the euro area. So that's where we are.
Okay. Thank you for that. And the pilot, you'd pick specific cities or you'd figure out how to do the testing?
It's actually, it's interesting. We, the users, consumers, if you will, will be staff of the national central banks of Europe.
Yes, because they can be pretty critical and very focused. And it will bring together merchants which we have selected, and there are 36 financial institutions, including of course a number of banks, which are prepared to play the game of the pilot to say, okay, it's not working here, or this should be faster there, or, you know, the payment should happen in such a way. So it's all users, merchants, and service suppliers, including banks, that will participate, and they come from all over the euro area.
And the commercial banks, when you talk to them, obviously they're integrated into this rollout. They're part of the whole pilot process.
Okay. So let's talk about stablecoins. That's a topic we spend a lot of time in the US thinking about. You gave a speech in May. It got a lot of attention back in the US, I'm sure you're aware. And basically it concluded that Europe's building its own foundations and infrastructure. And I'm quoting you now: 'harness the benefits of innovation without importing the fragilities.' So, can you outline some of your concerns about dollar-backed stablecoins? That's what I took away from your speech, that there was some skepticism about them.
Yeah, and I'm glad that you mentioned these two, the two elements of that sentence, because we are very open to technology, to innovation, to making the payment experience as seamless and as efficient as possible. So anything that helps with that, we are looking at it with great interest. Maybe we will talk about the tokenization and the use of DLT to transfer money.
So in relation to stablecoins, you know, there is no hostility, but I think that they play a different role from that of the digital euro. And I can see a business case for stablecoins when, for instance, they're trying to move crypto assets into the fiat money world, and that's predominantly what they do at the moment, and they do that well. You know, about 90% of all stablecoin transactions serve that purpose: move from crypto world to fiat world. Fine. I can see also a role for them, whether they're dollar-denominated or euro-denominated for that matter, when there is a cross-border payment and one leg of the payment is outside the European Union, because then it can facilitate. But other than that, I don't really see the ultimate additional purpose. But, you know, maybe it's me not seeing it. But I have observed that the two key stablecoins at the moment, US dollar-denominated, have been plateauing for about a year since October '25. We haven't seen much increase of either of these two. One of which, by the way, is located very much outside the United States, and the other one is smaller than the first. So, you know, nothing, nothing against technology, on the contrary, understanding of the limited business case, but limited.
And the euro-denominated stablecoin, this idea, how it would interplay with a digital euro. I know this has been talked about. I wonder how you see the...
You know, the two, so the euro-denominated stablecoins and the digital euro are not mutually exclusive. I think they serve a different purpose. The digital euro is intended for payment purposes. So we share a payment, we organize that through the digital euro. I owe you something, you owe me something, we organize it through digital euro. You use your phone, I use my phone, or we use a card, whatever. But this is really the intended purpose, including, you know, e-commerce, point of sales, all of those. The euro-denominated stablecoins, I think, can serve the purpose when you have, as I said, a payment involving a euro area leg and a non-euro area leg.
That makes sense, yeah.
Okay, let's talk about...
But one thing that you also always have to take into account is the cost, because there is a sort of conventional knowledge that stablecoins are cheap. Well, we experimented, and Banca d'Italia, for instance, played the ghost customer, and they experienced it using 10 different corridors to, you know, to channel those stablecoins. And guess what? The commission, the add-on fee, varied from anywhere 0.3% to 9% of the value of the transaction. Very different than sometimes gets conveyed. I think when you want to really compare, you have to compare all costs included: ramp on, ramp off, exchange rate, commission, all of it.
And there was some interesting research at Jackson Hole I saw on stablecoins and of the frictions around them. So this idea, I think, is getting a little more traction now. Let's talk about wholesale. There's been new projects from the ECB, AYA and Pontes. I want to hear from you the status of them, the motivation behind them, what is trying to be improved in the backend financial plumbing that maybe people don't understand but is actually how money is transferred in bulk between banks around the world.
Yeah. So, and that's the reason we call it the wholesale digital payment. It involves generally large amounts and it involves commercial banks. So, of course, you would remember, Josh, we are a central bank, and central banks play a critical role in the whole payment pyramid, if you will, because central bank money is foundational. This is the one that actually guarantees that a euro is a euro is a euro, a dollar is a dollar is a dollar. And in this world that is becoming increasingly more digital, we believe that wholesale payments have to be organized in such a way that we use the fastest, the most efficient digital payment systems and rails.
So what our teams have produced is the first one called Pontes. It's a bridge. So it's a bridge between different distributed ledger technology that organize the movement of payments. So payment initiation, delivery, and you have the settlement in between, and that settlement function is what we central banks provide, and we provide it through that bridge which interconnects the digital ledger technology used by the different banks. Now, we do that, and I think it... we started on September 21st. Okay. So very short return of experience, if you will, a few weeks, but we have heard no complaints, no delay, no unpleasant experience. The experience by the banks has been positive. Now, it is still limited in time. So it's on a five-day basis. I can't remember exactly the opening hours, but it's something like from 8 to 8 or something along those lines. So it is not yet, it does not have the universal, you know, 24/7, 365 days settlement mechanism.
We will have that with AYA. So Pontes is working. We will gradually ramp up Pontes. So we enlarge the time during which the service is available gradually until early '29, when then AYA, and AYA in Latin means a door, so it's even more than a bridge. AYA will perform on a 24/7, 365 days a year, and it will be the service of settlement that will be orchestrated through that cohesive payment and settlement mechanism where all three operations will be integrated.
And what is the ambition to get there in terms of a timeline for AYA?
'29. So potential retail digital euro, AYA side...
Full and comprehensive service, but Pontes is already a great, a great, a great service.
Let me ask you about fragmentation and sovereignty. You have raised this several times when it comes to payments, and it's such an interesting concept because we don't hear it from a lot of other central banks. You've described the European alternative to American and Chinese payments like Visa, Mastercard, PayPal as a march toward independence for the euro area. I know when we talk to American companies like Visa and Mastercard, they say, 'No, we're global companies.' Yes, we're the US global. I wonder how you respond to that.
So I agree that those payment companies are global players, and they have been at it for a long time, and they have invested heavily, and they charge their services appropriately. But they are private operators, and they are subject to jurisdictions that are not European jurisdictions.
So I think all we are saying is, in order to be the master of your own destiny, you need to be able to switch on, switch off yourself. And that's the reason why I think that the digital euro should be in both retail and wholesale format, so that we can orchestrate payments between citizens and merchants, between banks, in such a way that no external jurisdictions or no external players can actually be prevented, for instance, of providing services. So it's not to, you know, outplay them because, number one, they're way too big for that. Number two, everybody should be allowed to compete. But it's with a view to having a system of which we have, over which we have control and jurisdiction.
Understood. So fragmentation more broadly, if we think about where the euro area is headed, where the US is headed, where the UK is headed, where Japan, where China, there's different paths being followed, right? The US is leaning in on dollar-backed stablecoins. The euro area has its objective. The UK is deciding between paths. China's developing some alternative payment systems, e-CNY and others, which are interesting. Do you worry at all about a payment fragmentation landscape developing? Is this a concern?
You know, I think what will be critically important is that all these systems actually talk to each other, and that there is interoperability between them, and that interoperability actually applies also to what we are developing in Europe. You know, there is, because we have a desire to take ownership of technology and to innovate and to experiment, use of distributed ledger technology and tokenization of assets and securities and what have you will be encouraged. It is encouraged under the current pending legislations. I think what's important is that it doesn't go in so many directions that these systems don't talk to each other, do not interoperate. I think that's the most critical.
And there are projects going on, Agora and others, where I know banks are trying to work with each other across to develop this and get ahead of the future. Okay. I have to ask you about Nexus as well, artificial intelligence, because you can't get out of a conversation without talking about artificial intelligence here this week.
You talked about the criticality of the euro area having their own AI and that sovereignty aspect outside of payments, and I wonder where you see that developing. There's obviously projects on the payment side, but on the AI side, do you feel like there's enough happening on the innovation front across Europe?
Okay. Well, two things. One is AI in and of itself comprises multiple segments. And when I look at the supply chain, for instance, I see that ASML, for instance, in the Netherlands, which makes those very, very sophisticated lithography machines, is part of the supply chain, is located in the Netherlands, and is regarded as a critical node in the whole chain. So that's also one way to be part of this experimentation, transformational as it is. But if we need them, they need us. That's a good way to be together in partnership and to make business together. That's point number one. And I think being part of that ecosystem and that supply chain is one way of participating in the developments and exercising some sovereignty as well.
I think the second point that I was trying to make is that if artificial intelligence is to transform our environment and is to improve our productivity and is to potentially substitute some of the aging employees that, just like me, will one day step out of the job market, then we have to be part of that. And I very much hope that with the development of capital market union and with savings in Europe being, you know, spent on developing artificial intelligence, but, you know, we can, we can play our part. Are we going to try to catch up with the likes of the three big guys in the US or the many other guys in China? Probably not. Will we be in open system or proprietary system? This is something that will be debated. But I think that we can stand on the shoulders of others, cooperate with them, and also be in charge and hopefully master of some sort of destiny for ourselves.
Overseeing a central bank, do you worry about AI from a cybersecurity standpoint? I just finished an event, this Bangkok blueprint launch on cyber threats, and I wonder how you think about financial stability and AI for protecting the financial system, part of it.
