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REPORT     
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19 December 1997
PE 221.251/fin. A4-0417/97
on Electronic Money and Economic and Monetary Union
Committee on Economic and Monetary Affairs and Industrial Policy
Rapporteur: Mr John Stevens
By letter of 10 June 1997 the Committee on Economic and Monetary Affairs and Industrial Policy requested authorization to draw up a report on electronic money and economic and monetary union.
 A MOTION FOR A RESOLUTION
 B. EXPLANATORY STATEMENT
 OPINION
 OPINION

 By letter of 10 June 1997 the Committee on Economic and Monetary Affairs and Industrial Policy requested authorization to draw up a report on electronic money and economic and monetary union.

At the sitting of 18 July 1997 the President of Parliament announced that the Conference of Presidents had authorized the committee to report on this subject and that the Committee on Research, Technological Development and Energy, the Committee on Legal Affairs and Citizens' Rights and the Committee on the Environment, Public Health and Consumer Protection had been asked for their opinions.

The Committee on Economic and Monetary Affairs and Industrial Policy had appointed Mr John Stevens rapporteur at its meeting of 25 April 1996.

The Subcommittee on Monetary Affairs considered the draft report at its meetings of 25 February 1997, 24 September 1997, 13 October 1997 and 25 November 1997.

The Committee on Economic and Monetary Affairs and Industrial Policy considered the draft report at its meetings of 23 September 1997, 8 October 1997 and 2 December 1997.

At the latter meeting it adopted the motion for a resolution unanimously.

The following took part in the vote: von Wogau, chairman; Katiforis and Secchi, vice-chairmen; Stevens, rapporteur; Antilla (for Riis-Jørgensen), Argyros (for Christodoulou), Arroni, Barton (for Donnelly), Billingham, Blokland (for de Rose), Bowe (for Harrison), de Brémond d'Ars, Burenstam Linder (for Carlsson), Camisón Asensio (for Areitio Toledo), Cassidy (for Fourçans), Castagnède, Ettl (for Glante), Ewing, Filippi (for García-Margallo y Marfil), Friedrich, Funk (for Langen), Gallagher, García Arias, Gasòliba i Böhm, Hautala, Hendrick, Herman, Hoppenstedt, Ilaskivi, Kestelijn-Sierens, Konrad, Lulling, Mather, Metten, Miller, Paasilinna, Peijs, Peter (for Murphy), Pérez Royo, Read, Rübig, Soltwedel-Schäfer, Svensson, Theonas (for Ribeiro), Thyssen, Torres Marques and Watson.

The opinions of the Committee on Research, Technological Development and Energy and the Committee on the Environment, Public Health and Consumer Protection are attached. The Committee on Legal Affairs and Citizens' Rights decided on 2 September 1997 not to deliver an opinion.

The report was tabled on 19 December 1997.

The deadline for tabling amendments will be indicated in the draft agenda for the relevant partsession.


 A MOTION FOR A RESOLUTION

Resolution on Electronic Money and Economic and Monetary Union

The European Parliament,

- having regard to Rule 148 of its Rules of Procedure,

- having regard to the report of the BIS of November 1996 on Electronic Money and Monetary Policy,

- having regard to the conclusions of the Dublin Council of December 1996 on the transition to the Single Currency,

- having regard to the conclusions of the Brussels G7 Council of February 1995 on the Information Society,

- having regard to the series of recent announcements by various Member States on the possible introduction of smart identity cards,

- having regard to the report of the Committee on Economic and Monetary Affairs and Industrial Policy and the opinions of the Committee on Research, Technological Development and Energy and the Committee on the Environment, Public Health and Consumer Protection. (A4-0417/97),

A. whereas the development of electronic money constitutes not just a transformation in payment systems but a re-definition of money itself, thereby raising the question of who should be responsible for its issue: the issuing of money can be left completely free, be restricted to specified institutions subject to regulation by Central Banks, or continue to be restricted to Central Banks exclusively,

B. whereas the development of electronic money moreover raises the question of whether and to what extent it should be made subject to monitoring by the competent authorities,

C. whereas specifically, the replacement of cash by electronic purse cards is likely, over the next decade, to be a more significant development than electronic money on the internet since it does not entail such a large change in the habits of consumers and suppliers,

D. whereas the widespread use of electronic purse cards, could ease significantly the difficulties for Europe's citizens of the introduction of the Euro, both by replacing cash transactions and by providing the facility to calculate the old national currency equivalent of sums in the new Single Currency,

E. whereas the rapid introduction of electronic purse cards, provided this took place in a standardized format, could significantly ease the difficulties for European business in making the necessary information technology investments for the introduction of the Euro,

F. whereas the growth of electronic money and the concomitant probable increase in velocity of circulation, will require central banks to adopt new arrangements to monitor its issuance and management in order to operate monetary policy effectively,

G. whereas the development of electronic money and its widespread public acceptance is likely to occur over a period of many years, and is therefore unlikely to pose any immediate threat to Central Banks" cash assets and seigneurage, and their ability to conduct monetary policy,

H. whereas the growth of electronic money may render the responsibility, whether of central banks or of other competent authorities, of supervising financial markets substantially more difficult, if these bodies are unable to carry out effective monitoring where this is necessary,

I. whereas the ECB would probably not wish to administer and operate electronic money,

J. whereas a central bank regulatory regime for electronic money should not have the effect of restricting the operation of such systems to banks alone, not least because this might slow the process of rationalization underway in European retail financial services provision that is essential for the overall competitive position of our economy,

K. whereas the pace of growth in the use of electronic money in the European economy is a crucial element in determining the pace at which we become a genuine Information Society, an objective which is obviously vital for Europe's future global competitive position,

L. whereas integrating the move to the Single Currency with the development of the Information Society will powerfully promote the supply side revolution in the European economy and the flexible, creative culture in European society, which are the very essence of the vision driving the EMU programme,

M. whereas the present proliferation of different forms of electronic money generally and of electronic purses in particular, is likely to raise entry costs to the electronic market place and would thus create the danger of Europe's move to the Information Society becoming, at the very least, biased against SMEs and quite possibly gridlocked by anti-competitive, incompatible software and hardware systems,

N. whereas by the same token, a standard format for electronic money and for smart card electronic purses, by lowering the entry costs to the electronic marketplace, would disproportionately benefit SMEs and therefore might dramatically accelerate the pace at which Europe becomes an Information Society,

O. whereas smart card technology offers the possibility of adding onto an electronic purse card a multiplicity of functions, both financial, such as those of credit, service provider and store cards, or general, such as those of identity and social services claimants' cards or driving licences, thereby removing the need for Citizens to carry around an increasing number of different single function cards,

P. whereas a standard format for smart electronic purses would therefore also diminish the parallel dangers of anti competitive market cartelization and potential technological grid lock in the non-monetary use of smart cards by encouraging the development of multi-functional cards, which would further accelerate the advent of the Information Society,

Q. whereas in particular, the development of sound electronic money and secure electronic proof of identity are the two essential foundations of the electronic marketplace which is central to the Information Society,

R. whereas the development of electronic money, within a proper regulatory framework, especially if combined with smart identity cards, could reduce fraud, tax evasion, money laundering and other crime and that therefore the case for allowing it to offer the same anonymity as currently enjoyed by cash, should be considered most critically,

S. whereas nevertheless, restricting the anonymity of transactions using electronic money and the development of the electronic marketplace generally, obviously raises issues of civil liberties which must be fully debated with a view to introducing a comprehensive regulatory framework, preferably at Union level,

T. whereas however, the absence of a proper regulatory framework for electronic money would substantially exacerbate the inadequacies already apparent in the supervision of both public and private sector data bases across Europe, and could, in itself, therefore, constitute a threat to civil liberties,

U. whereas there may be in the longer term potential sources of revenue from the multi usage of the card, for example by renting additional processing capacity on the card"s smart chip to private sector service providers, such as credit card operators, retailers offering customer loyalty cards, telecommunications companies etc, or to the public sector for such functions as a driving licence, social security or identity card,

V. whereas it is important to ensure a multiplicity of issuers within a regulatory framework which provides for public confidence, interoperability and the stability of the financial system, in order to allow for greater competition and innovation,

W. the issuers of such cards should be regulated principally by the competent supervisory authorities in order to ensure effective control; in this context, considerations of competition and consumer protection must also be taken into account,

X. whereas appropriate issuers or operators would therefore be those financial institutions which comply with the requirements set out in an EU wide regulatory framework;

RECOMMENDS THAT:

1. The future European Central Bank should, together with the competent authorities, be involved in the oversight of the electronic marketplace in Europe;

2. Therefore, the Commission puts forward a proposal for the establishment of a regulatory framework for the issuance of electronic money, which allows all institutions which meet the requirements of public confidence, interoperability and stability of the financial system, to issue electronic money under a single European passport and the supervision of the competent authorities;

3. The Commission should give consideration to how electronic purses could be adapted to calculate the old national currency equivalents of sums in Euros;

4. Issuers should be required to furnish the ECB such data from the system that the bank deemed necessary to the management of monetary policy;

5. Issuers should be required to furnish such data to the competent authorities as they deemed necessary for the supervision of the integrity of the financial system generally;

6. Issuers should be required to furnish such data to other relevant authorities as would be deemed by European or national laws to be necessary to achieve other objectives of public policy, such as the fight against crime;

7. The EMI comment on this proposal and set out its own analysis of the relevance of electronic money to the realisation of EMU, in a formal presentation to the Subcommittee on Monetary Affairs of the European Parliament at its earliest convenience;

8. The Commission, likewise, comment on this proposal;

9. Those Member States governments which have plans to apply smart card technology to identity cards and/or to the streamlining and modernisation of the administration and provision of public services, submit comments on this proposal at their earliest convenience to the Subcommittee on Monetary Affairs of the European Parliament;

10. Any private sector interests which at present or, over the next five years, are planning to be significant users of smart card technology, likewise submit their comments on this proposal;

11. The Council institute its own study of the integration of moves towards EMU and the Information Society;

12. The Commission submit to the Council and the European Parliament, proposals for a regulatory framework for the issuance of the Euro smart card, and the management of smart card systems, at its earliest convenience;

13. The Commission, on the basis of the 5th EU framework research and development programme, and out of concern to protect more specifically the right to privacy and to ensure the safety of transactions, promote research activities in the field of encryption software compatible with the worldwide use of electronic money under conditions of legal regularity and security;

14. The Council, perhaps in consultation with the Council of Europe, should institute a study of the security, data protection and civil liberties implications of the electronic marketplace;

15. Instructs its President to forward this resolution to the Commission, Council and the EMI.


 B. EXPLANATORY STATEMENT

Two revolutions are about to sweep through European financial services:- European Monetary Union and the advent of electronic money. For some time now, practitioners and commentators have been speculating whether these are or should be linked in public policy initiatives at the European level. Clearly, the momentous transition due on 1 January 2002 from national notes and coins to Euro notes and coins might be vastly facilitated if, to a large degree, people were no longer using notes and coins at all, but some form or other of electronic money, such as smart card electronic purses.

Smart cards are a technology in which Europe currently has a leading position. A greater use of electronic money in Europe would also plainly represent a significant step forward in the direction of the information society. The faster Europe achieves this status, the more secure will be its global economic position and its capacity to protect and advance the standard of living and welfare of all its people. The massive investment in information technology that the introduction of the Euro will require could become therefore an opportunity to make such a step forward. This would add to all the other economic advantages which the single currency will bring, notably in the completion of the Single Market, a massive modernisation of the technical infrastructure of the whole of the European economy.

This modernisation would extend far beyond the area of money and financial services. Smart card technology is already being applied to streamlining administrative functions in the public services such as in identity cards, social security and health benefit claimant cards, and the like. Because of the multi-function capacity of the smart card technology, it would be possible to imagine a substantial pooling of infrastructure investment by the public and private sectors which would allow the citizens to have on only one or two cards a common key for accessing a whole range of services.

There are also links between EMU and electronic money of a different kind, threats rather than opportunities. Principal among these could be the impact on the conduct of monetary policy arising from the end of traditional cash. The European Monetary Institute, the precursor to the European Central Bank, is bringing out a report on this in the near future.

There is also the danger that an unregulated development of electronic money, driven often by large scale businesses able to make the necessary infrastructure investments and motivated by the objective of creating customer loyalty, far from promoting the information society, could in fact make its full realisation more difficult. Cartellization of markets and the erection of barriers to multi-functionality could result and Europe's present relatively advantageous position in the technology and the huge opportunity for rationalisation which the single currency represents, could be lost. In particular, there is the issue of whether the advent of electronic money threatens the traditional definition of what is a bank and that therefore a new regulatory framework specific to issuers of electronic money will be required to avoid systemic risk and to ensure consumer protection.

In all of these areas, the global dimension must also be taken into account. Any position which Europe adopts must relate to developments in North America and in the Far East, though there is obviously a prize if we are able to create a regulatory regime in advance of other centres and in resolving our own problems, we set the agenda for the world.

The Commission is due to bring out its proposals for a draft directive in the Spring which will indicate its thoughts on these matters. Again, the electronic market place could constitute a threat to civil liberties either because of the data protection implications of multi-functionality or because certain groups such as the old, the disabled or the poor might be excluded from participating fully in the new infrastructure. Despite the growing urgency of this aspect of the issue, which goes far beyond the field of electronic money, neither the EMI nor the Commission, nor the Council has seen fit yet to focus upon it and the Parliament's treatment of the matter has been hitherto only of a piecemeal kind.

The objective of this report was to try and encourage the EMI and the Commission to maximise the opportunities that the advent electronic money offers for the process of monetary union and for Europe more generally and to counteract its threats. It is also to be hoped that the Parliament's intervention will encourage a greater degree of clarity and cooperation in the Council so that the various national initiatives in the field of smart card technology are mutually compatible and constitute parts of a coherent overall European strategy. It is difficult, however, to be very optimistic. At the most basic level, it seems that the other principal players have suffered a general loss of nerve over linking a positive encouragement of electronic money to the introduction of the Euro. It appears to be felt that persuading Europe's citizens to move from their national currencies to the single currency is already such an ambitious undertaking that to combine the process with a technological revolution in the citizens' habits with regard to money is to ask altogether too much. The risks of adverse reaction are thought to be too great. The EMI and the Commission in particular, seem to prefer a reactive rather than a pro-active approach, that they justify by assuming that the percentage of cash in the economy that will have been replaced by electronic money before 1 January 2002 will not be large enough to play any important part in facilitating the change over to the Euro, or to constitute a threat to traditional monetary policy management. The most that they appear prepared to do is to propose a new regulatory framework for the issuers of electronic money. It seems they wish to appear to be doing something in the area of banking supervision and consumer protection while awaiting events.

Whether this judgement is wise or not depends essentially on their relatively pessimistic assumption as to the likely pace of the spread of electronic money in the European economy over this period. Whilst this is extremely difficult to predict, the US experience of Internet based payments suggest it could easily be far faster than they currently anticipate. If this proves to be the case, Europe could find itself in the worst of all possible worlds with an incoherent and fragmented infrastructure driven by particular private and public sector interests without any reference to the interests of the Union as a whole and fraught with dangers that might damage both EMU and our advance towards an information society. This report, for all the tentative nature of its propositions, is designed to be a warning shot by the representatives of the people of Europe to those institutions who have the primary responsibility in this field to take this question more seriously than they appear to have up until now hitherto been able to do.

22 October 1997


 OPINION

(Rule 147)

for the Committee on Economic and Monetary Affairs and Industrial Policy

on New Technologies and Money; report by Mr Stevens

Committee on Research, Technological Development and Energy

Draftsman: Mr Alain Pompidou

PROCEDURE

At its meeting of 4 September 1997 the Committee on Research, Technological Development and Energy appointed Mr Alain Pompidou draftsman.

It considered the draft opinion at its meeting(s) of 9 October 1997 and 21 October 1997.

At the latter meeting it adopted the following conclusions unanimously.

The following were present for the vote: Scapagnini, chairman; Quisthoudt-Rowohl and Adam, vicechairmen; Pompidou, draftsman; Ahern, Argyros,Bloch von Blottnitz, Camisón Asensio (for Mombaur), Chichester, Desama, Estevan Bolea, Ferber, Izquierdo Collado (for Tannert), Linkohr, McNally, Malerba, Matikainen-Kallström, Plooij-van Gorsel, Rothe, Soulier, Stockmann, Vaz da Silva (for Rovsing) and W. G. van Velzen.

INTRODUCTION

The rapid, on-going development of information and communication technologies (ICTs) will soon transform the way we handle and spend money: indeed the development of electronic means of payment will transform the very concept of money, and will pose serious challenges to existing fiscal, legal, and possibly even political structures, worldwide.

This opinion will concern itself with two different types of electronic money: pre-paid/smart cards, and internet-based payment systems, both of which aim at maintaining two of the main characteristics of cash: liquidity, and anonymity. Policy makers need technology assessments to help them understand these developments, and analyse their possible implications. This opinion offers some initial guidelines in this direction.(1)

Pre-paid smart cards

Smart cards are plastic cards which include an embedded micro-processor, or 'chip', in contrast to many bank and credit cards which simply have a magnetic strip. Their basic function is in storing monetary value in the chip, which can then be spent by the card owner on goods and services. There are four basic types of card being developed:

memory cards, the simplest, (which may or may not require a Personal Identification Number (PIN) for access), which possess simple data storage space, which can thus 'hold' a certain amount of pre-loaded 'cash', and which require only fairly simple technology at the point of sale. They can usually be 're-loaded' with 'cash', for example at an automated teller machine (ATM);

shared-key cards, which store a secret key, and which enable communication with other cards which share that key. These require modestly sophisticated technology at the point of sale;

signature-transporting cards, which are pre-loaded with a supply of digital 'blank cheques', each of which can be (digitally) allocated specific value and (digitally) signed. Since no point of sale verification is required, and since the digital 'signature' is anonymous, the point of sale technology does not have to be very sophisticated;

signature-creating cards, which are capable of generating their own digital blank cheques, with different signature requirements. These are the most complex type under development, and may be too sophisticated for normal, everyday use;

It is widely assumed that there is an immediate and ready market for the simple memory cards, which could essentially replace the cash which most people carry with them on a daily basis, and which they use for the relatively low-value transactions for which credit-cards are too fussy, expensive (to the seller and, possibly, to the buyer), and time-consuming. The ease of use should prove attractive to consumers, provided they can be reassured about reimbursement in the event of loss, theft or malfunction.

Suppliers of goods and services will be attracted by not having to guard significant quantities of cash on the premises, by minimal handling costs, by the increased speed of transactions, and by opportunities for customer-loyalty schemes,

Issuers (such as banks) may or may not be able to charge a fee for issuing the cards, but should certainly be able to invest or otherwise gain interest on the amounts loaded into the cards, may be able to charge a modest commission to the suppliers of goods and services, should be able to licence or franchise successful schemes, will eliminate cash transporting costs, and will need less branches.

It has been suggested that there is a perfect opportunity for synergy between the introduction of a single currency in Europe, and the introduction of pre-paid smart cards. Credit cards, after all, represent a sort of single currency for higher value transactions, though they are not 'transparent' as to the 'home' currency equivalent of the amount being paid. Pre-paid cards with embodied chips, on the other hand, could be equipped with the software to enable the user rapidly to see (either on an LCD display on their card, or on a screen at the point of sale) their 'home' currency equivalent of the amount in Euros they are spending.

Interoperability

This Opinion takes it for granted that interoperability is essential: the short-term benefits associated with 'loyalty' schemes based on technological exclusivity or 'lock-in' are as nothing compared to the increased possibilities for global trade and commerce based on interoperability. But should interoperability be guaranteed by an attempt by legislators, either regionally or globally, to determine appropriate technological standards, or should it be left to the market place to see which of several rival systems emerges triumphant? The experiences with MS-DOS versus Apple-Macintosh, Betamax versus VHS, and PAL versus HD Mac - D2 Mac, suggests the market does not always choose the best or most sophisticated technology - indeed it often prefers the 'cheap and cheerful'. On the other hand, the HD-D2 Mac versus digital HDTV conflict, demonstrates that Governments and international organisations may also impose unfortunate technological choices on an unwilling public. The best solution may be for public money to be used initially to promote a variety of rival systems, with support later being switched to that / those which are most successful in the market place. We note that the CAFE (Conditional Access for Europe) scheme being developed by the Commission within its ESPRIT programme does seem to be avoiding the pitfalls of the HD-Mac dictatorial style of standards development: indeed there does seem to be a widespread consensus that it is far too early to seek to impose definitive technological standards at this stage.

Digital Money and the Internet

The internet, which started life as a secure communication system within the US defence community, has been transformed by the development of the World Wide Web at CERN, and the subsequent development of WWW browser software, into a remarkable system for the global exchange of ideas, information, and latterly goods, services, and money. Indeed the Internet is rapidly becoming a global marketplace, and 'virtual shopping' is rapidly becoming an everyday occurrence. Inevitably, ways have been and are being developed to use the medium of the Internet for the transfer of payments. These payment systems fall into three broad categories:

• electronic cash systems, in which customers purchase electronic currency certificates from a currency server, and which can be spent with total anonymity, protected by public key/private key encryption technology;

• credit-debit systems, which places an intermediary payment account between a credit card holder and the supplier of goods and services. The credit card holder is provided with and uses an ID number, so does not have to transmit his/her credit card number over the Internet.

• systems supporting secure presentation of credit card information, which eliminate the need for the intermediary account by guaranteeing the security of the transmission of credit card numbers by encrypting them using public key / private key software;

The Committee on Research, Technological Development and Energy, believes that although digital / electronic payments via the Internet are of enormous long-term potential, the access costs for many consumers (in other words the cost of a sophisticated home computer plus modem plus Internet server etc etc), and the experience most computer users have with system crashes and hardware failures, will mean that this market will take significantly longer to develop than that for pre-paid smart cards. It is also possible that the two technologies could become interlinked, via the development of smart-card reading devices on PCs - which, if interoperable, would enable purchasers to use terminals wherever they happen to find them, and in a fairly simple and straightforward way.

Regulatory, Legal and Political Aspects

It would seem logical that companies who issue pre-paid smart cards should have to abide by the same rules and regulations as conventional credit institutions, and also be subject to the same monitoring procedures imposed by Central Banks and other monetary authorities. This basic principle has already been advocated by the European Monetary Institute (EMI) and the Bank for International Settlements. Pre-paid cards should not have any major implications for monetary policy, other than that they will reduce the amount of physical cash in circulation. If however, the amounts 'stored' on such cards becomes significant, depositors may need the benefit of some form of legal or regulatory protection, such as they now have with bank deposits.

Digital cash and internet payment systems pose rather more fundamental problems. The technologies are being developed by a host of different players in the market: software companies, credit card companies, and banks. They may involve effective creation of money, and they will certainly generate serious difficulties with respect to the collection of taxes: when goods and services can be ordered and paid for anonymously in a global marketplace, taxation authorities are going to have an interesting time determining exactly what was the taxable event, and who was the taxable (legal or natural) person. It also seems very desirable that central banks or other financial regulatory authorities should have the ability to control not only those issuing e-money, but also those receiving it. The difficulties facing regulatory authorities in this field have led to some suggestions that digital money should only be issued by central banks

In the short term, in an area where the evolving technology is way ahead of the possibilities of the regulatory, legal and political systems to react to it, it would surely be desirable for the industry to develop voluntary codes of conduct. The European Community would appear to be in a strong position to lead this kind of initiative, in developing self-regulatory mechanisms. Moreover, given the lack of harmonisation of Member States' legislation in this area, there would seem to be considerable scope for the EU to at least promote this much needed harmonisation, which could eventually lead to global agreements. The evolving role of the future Central European Bank could, of course, see much more regulatory power allocated to this institution. There may be a need in Europe for what has been described as a 'trusted third party' (TTP), to serve as an intermediary between users of EU money. Again, the EU is in a strong position to encourage the development of this type of infrastructure by encouraging the compatibility of the digital signature systems being developed in the Members States.

A central political question concerns the right to privacy. The same technologies which enable the legitimate purchaser to buy in confidence and security from the legitimate supplier also, alas, enable the money launderer and the tax evader to practice their art. In the USA, the Federal Government has prevented internet export of the best available encryption software, since it maintains that its criminal investigatory and taxation authorities must retain the right to monitor private transactions, in order to prevent fraud, tax evasion and other crimes. In other words, the US Government proposes to retain control of a kind of electronic master key to supervise e-money transactions. Other countries may feel that personal rights to privacy outweigh the social benefits of crime prevention, especially if there are other mechanisms of performing the latter function.

Conclusions

The Committee on Research, Technological Development and Energy asks the Committee on Economic and Monetary Affairs and Industrial Policy to include the following conclusions in its draft resolution:-

1. Strongly supports the development of interoperability between different means of electronic payment, and encourages the on-going development of such technologies on the basis of the 5th EU framework research and development programme;

2. Believes that the EU should take a leadership role in the development of technologies and marketled standards in the area of electronic commerce, in cooperation with industry;

3. Supports the notion of pre-paid Euro-cards, especially if they are also able in any event to express Euro amounts in national currency denominations for as long as national currencies continue to exist as an expression of the Euro at invariable conversion rates;

4. Wishes to see a feasibility study by the Commission for the promotion of one or more "trusted third parties" in Europe and for the evaluation of the final cost to the consumer of electronic payments and commerce;

5. Concerned to protect the private lives of European Union citizens, calls on the Commission to take account of the ethical, social and legal aspects of the use of electronic money;

6. Concerned to protect more specifically the right to privacy, and to ensure the safety of transactions, urges the Commission, on the basis of the 5th EU framework research and development programme, to promote research activities in the field of encryption software compatible with the worldwide use of electronic money under conditions of legal regularity and security;

7. Calls for the rapid introduction of a voluntary code of good practice by those involved in the supply of electronic money;

8. Calls on the Commission to consult the main partners concerned, with a view to establishing an annual limit for the amount of transactions in electronic money for personal use;

9. Advocates the need for international consultation with a view to the harmonization of specific legislation on the use of electronic money.

(1)() The draftsman is particularly appreciative of the STOA report: "Technological Innovation and Money" (J.Valls et al, PE 166.483, 3/2/97), which substantially influenced this opinion.


 OPINION

(Rule 147 of the Rules of Procedure)

for the Committee on Economic and Monetary Affairs and Industrial Policy

on electronic money and economic and monetary union (report by Mr John Stevens)

Committee on the Environment, Public Health and Consumer Protection

Letter from the committee chairman to Mr von Wogau, chairman of the Committee on Economic and Monetary Affairs and Industrial Policy

Brussels, 30 October 1997

Dear Mr von Wogau,

The Committee on the Environment, Public Health and Consumer Protection considered the above subject at its meeting of 30 October 1997.

At that meeting it adopted the following conclusions unanimously(1):

When this opinion was being drawn up the explanatory statement of the Committee on Economic and Monetary Affairs and Industrial Policy's own-initiative report was not available so that there is still a certain lack of clarity with regard to the meaning of electronic money.

In particular, the motion for a resolution does not make clear how electronic money could be obtained and whether this concept is identical with that of smart cards.

The report rightly points out the potential dangers for fundamental rights if citizens of the Union carry smart cards (with identity card, driving licence and social security card functions). However the report calls for the private operator of the smart card system ('franchisee') to make available to the state authorities data which have been obtained from the card operations. This demand clearly raises enormous problems in terms of data protection law which need to be discussed in greater detail than is possible in the framework of a European Parliament own-initiative report. These threats to fundamental rights would become even greater if, at some future date, consumers were obliged, because of common practice or as a result of legislation, to carry such a card as a means of payment and/or as an identity card.

In terms of consumer protection it also seems problematic that the franchise for the circulation of electronic money will initially be granted by the European Central Bank to only a single private franchisee. It is unclear why there is to be no competition for a transitional period precisely in this field. If money is to be issued by private undertakings they must at least have to keep to the operating rules of the market economy.

A large proportion of the population, especially those in employment who have little leisure time, those who travel a great deal, business experts, young people and those on high salaries, will undoubtedly gain many benefits from the introduction of electronic money.

This own-initiative report usefully indicates those areas where the situation will become easier: rapid circulation of money, easy availability of and convertibility into other currencies.

However, it does not deal with the problems which could affect those who do not form part of the group of people referred to above. For the blind, for example, cashless legal transactions would become even more complicated. Many old people would certainly have great problems in adjusting to this new type of payment system and would be particularly vulnerable to attempted criminal abuse. Socially vulnerable households can often not gauge the financial and legal consequences of their consumption patterns. Further facilitation of the cashless circulation of money could encourage them to incur further debts, with all the adverse consequences for their social and family situation.

Yours sincerely,

Ken Collins

(1)() The following took part in the vote: Collins, chairman and draftsman; Poggiolini and Dybkaer, vice-chairmen; Aparicio Sanchez (for Apolinari), Blokland, Breyer, Cabrol, Correia (for K. Jensen), Diez de Rivera Icaza, Eisma, Estevan Bolea (for Campoy Zueco), Florenz, Garosci (for Fitzsimons), Gonzalez Alvarez, Graenitz, Hulthén, Lange (for Needle), Leopardi, Lienemann, Marinucci, Martinez (for Stribois), Mendonca (for Jackson), Myller (for van Putten), Schlechter (for White), Schleicher, Trakatellis, Thyssen (for Schnellhardt), Virgin, Whitehead and Wieland (for Valverde Lopez).

Last updated: 27 March 1999Legal notice