Presentation by Sami Miettinen on How to Implement Digital Central Bank Currencies in the Eurozone. Part of the University of Helsinki event "The ECB after the Euro Crisis" on 27.4.2018. These issues were discussed in this presentation by investment banker Sami Miettinen (Sisu Partners). The other presenters were Professor of EU Law Lorenzo F. Pace (Università del Molise), Chief strategist Jan von Gerich (Nordea), and Head of division Hanna Freystätter (Bank of Finland). The event was moderated by Antti Ronkainen.

1. STRICTLY CONFIDENTIAL
April 27, 2018
How to Implement Digital Central
Bank Currencies in the Eurozone
Sami Miettinen, MSc (econ.), MBA, CFA
sami.miettinen@sisupartners.com
www.linkedin.com/in/miettinen

2. 1
Which international currency system maximizes prosperity for a local economy?
0
0.5
1
1.5
2
2013 2014 2015 2016 2017 2018
B
0
0.5
1
1.5
2
2013 2014 2015 2016 2017 2018
A
0.00
0.50
1.00
1.50
2.00
2013 2014 2015 2016 2017 2018
C

3. 2
Classification Private value store Private value token Central bank bearer
liability
Central bank digital liability Commerical bank digital
liability
Description Voucher-like Share-like Bond-like Account liability Account liability
Issuer
balance sheet
treatment
Service provider asset
(backed by deposits) and
liability (spending right)
None (hollow shares) with
ownership right only
Non-expiring zero-rate
liability at central bank
liabilities
Non-expiring policy rate
liability at central bank
liabilities
Zero/set-duration
commercial rate funding
source at commercial bank
liabilities
Includes Vouchers, pre-paid
service and gift cards and
schemes
Bitcoin, Ethereum, 1500 others Euro banknotes, coins Deposits placed by financial
institutions, central banks and
some corporations
Deposits placed by
households, corporations
and financial institutions
Source: ECB statistics, Yves Mersch speech 2/2018, Coinmarketcap, Sami Miettinen
* Partially collected statistic by ECB
Eurozone currency system is gigantic (~70x) compared to e.g. Bitcoin-like currencies
CharacteristicsExamplesCurrencyoutstanding€billions
This is already the fully
digital currency of
Eurozone.
Why it is a closed shop?
€11 bn €300 bn
€1150 bn
€2300 bn
€17500 bn
*
~21 000 000 000 000

4. 3
Digital euro creates a systemic risk – cannot be fixed with banking union only
Even minor cross-border flows can shut down the fixed price eurosystem
1. Mutualize deposit guarantees and
bail-in costs across Eurozone
2. Reduce banking in deflation areas
3. Cut bank liabilities including deposits
with “bail-in template” to match
assets
INSURE
2018-
Banking
Union and
Bail-ins
1. Close and restrict intra-eurozone
flows
2. Close and restrict physical cash
withdrawls
3. Bailout bank and government deficits
CONTAIN
2015-
Capital
Controls and
Bail-outs
FREE
2025?
Digital cash
rules
1. Don’t accidentally kill banks
2. Don’t intentionally kill the planet with
high-energy use blockchain
3. Create countercyclical market-based
balancing incentives

5. 4
Eurozone plans to copy IMF by introducing EMF – It should also copy SDR
Special Drawing Right trades exactly like European Currency Unit used to do
SDR Composition since October 2016
1979-1999 ECU and SDR 1969-Now
1) EU already had for 20 years the robust
digital platform solution ECU, which was
exchanged 1:1 to euro on 1.1.1999
2) Structured exactly like SDR, ECU
weighted 12 European currencies with
Germany at 32% (now 26% with ECB
capital key)
3) SDR is used by IMF to fund program
countries such as Greece, ECU was used
for intra-community payments,
especially agricultural subsidies
4) Both ECU and SDR fx-trade histories are
fairly stable
Weight
currency Weight
USD fx-
rate
13.4.18
USD fx-
rate
13.4.18
USD 41.73% 1 0.582520
Euro 30.93% 1.23225 0.476523
Renminbi 10.92% 6.27 0.110518
Yen 8.33% 107.675 0.110518
Pound 8.09% 1.4279 0.122722
100% ∑ 1.454418
∑ Weight * Fx rate of component

6. 5
Which international currency system maximizes prosperity for a local economy?
0
0.5
1
1.5
2
2013 2014 2015 2016 2017 2018
B
0
0.5
1
1.5
2
2013 2014 2015 2016 2017 2018
A
0.00
0.50
1.00
1.50
2.00
2013 2014 2015 2016 2017 2018
C
BITCOIN PRICED IN USD IN MULTIPLE
BITOCOIN EXCHANGES
GREEK DEPOSIT EUROS PRICED IN ITALIAN/
GERMAN/ FINNISH AND PHYSICAL EUROS
IMF’S SPECIAL DRAWING RIGHTS (SDR)
PRICED IN EUROS*
* Except in Greek bank deposit euros, which from time
to time have limited convertibility since 6/2015No price + No transaction
or volume at reduced level
Speculation & exchange failures
Limited access system

7. 6
Digital Euro Building Blocks
Market-priced best practices
€
€
€
€
€
€
Central euro definition (all existing
contracts)
• Legal price definition ∑ Weight * 20 local
digital euro price (currently no legal
definition of euro exist)
• Weights based on ECB capital key
(Finland 2%, Germany 26%, Italy 18% etc)
• Overly massive database size can be
reduced by allowing redenomination of
contracts to Local Euros (Lex Monetae)
€
1) Current fixed equal system price tools or
• Central Digital Euro price equals Local Digital Euro
prices (exactly 1:1 fx-ratio), ∑ has no price impact
• Account size restrictions per user at imbalance
• Intra-Central Bank transfer restrictions
2) Market-based tools
• Demand-based market price for each Local Digital
Euro (multiple prices around 1:1 fx-ratio)
• Central Digital Euro also floats freely, ∑ has price
impact like in SDR or ECU
Distributed Blockchain Local
Digital Euros (new local
contracts)
• 20 Central Bank managed
digital local side chain
euros
• Best available technology -
Delegated Proof-of-Stake,
Byzantine Fault Tolerance
etc
• Low energy use, official
management possibility
• Privacy vs. transparency to
be resolved