Issue link: https://maltatoday.uberflip.com/i/1542534
13 maltatoday | SUNDAY • 11 JANUARY 2026 INTERVIEW spending restraint, geopolitics as key risks oversight of property lending and preparations for the rollout of the digital euro tourism in Malta. Digital euro vote expected in May The ECB issues bank notes and coins, but it does not issue euro money in a digital form. This will change when the bank in- troduces the 'digital euro', a dig- ital form of central bank money. Launched in 2021, this project will allow people to make trans- actions, online or offline, using central bank money. The sys- tem will guarantee privacy, as transactions will be conducted through intermediaries such as licensed credit institutions and payment service providers. The ECB and Eurosystem central banks would have no informa- tion about any specific transac- tions of citizens using the digital euro. Demarco said that the Euro- pean Council has agreed on a draft legislative proposal for the digital euro, and the next step is for the European Parliament to vote on the proposal. The vote is expected to take place in May of this year, he said. "So far, both citizens and busi- nesses appear to be supportive of the digital euro. The con- cerns that have been expressed by some MEPs have largely fo- cused on privacy, which have been by and large addressed by the legislative proposal. Other concerns have been related to financial stability, but this has been catered for through the setting of holding limits that citizens would be allowed to keep," he said. Beyond privacy, European banks are concerned by the investment costs that will come with the digital euro. Even locally, Demarco said that the Central Bank had tried some years ago to bring domestic credit institutions together to operate on a common platform that would enable interopera- bility among them, but this fell through. "I believe that, apart from fear of intensification of competition, the main obstacle was that each bank had made investments in its own payment system infrastructure and they were reluctant to write off such a cost and engage in a new in- vestment," he said. However, Demarco said this won't be the case with the digital euro. "The infrastructure costs will be borne entirely by the Eurosystem itself, while banks and payment service providers would incur costs related to the front-end of the system and in monitoring transactions for any potential breaches of AML/CFT rules, as well as in managing po- tential fraud and disputes." Demarco highlighted that banks and payment service pro- viders stand to gain revenue from a digital euro. Merchant fees that are currently collected from card usage will be shared between the bank of the pay- er and the bank of the payee, and not with other third-party providers. Meanwhile, given the trend of diminishing use of banknotes, the volume of turno- ver should continue to increase and in turn raise revenues to in- termediaries. Digital euro aside, the Maltese banking landscape has changed over the past year, with a Czech bank acquiring MeDirect and Greek CrediaBank set to take over HSBC Malta later this year. During the latter acquisi- tion process, some pundits were concerned that local banks were failing to attract interest from more global banking giants, es- pecially given the loss of the on- ly international banking name in Malta. Demarco said this boils down to tighter regulatory require- ments in a post-2008 financial crisis world. These require- ments have made the banking sector safer, but it has also in- creased operational costs. "The increase in costs undoubted- ly has impacted jurisdictions like Malta where the domestic market is inherently small," he said. Technological develop- ments have also made it easier for firms in the European Eco- nomic Area to provide financial services across the bloc without additional authorisation, deal- ing another blow to Malta's lim- ited market. "What is more relevant for Malta is that there is a good de- gree of competition in the bank- ing sector serving the domestic market, that these institutions remain profitable, and that they satisfy comfortably the key reg- ulatory requirements," he said. "In this regard, all core domes- tic banks are sound and profit- able." Demarco pointed out that what also matters for the local banking sector is that they are able to secure the services of correspondent banks, especial- ly for US dollar transactions. "Domestic banks have under- taken significant investment in technology in respect of due diligence and transaction mon- itoring, which has attracted big US banks to provide such ser- vices to the local banking com- munity. This is essential given the high degree of cross-border business outside the EU." Central Bank to tighten property lending rules Central banks within the Eu- rosystem are limited in their actions because they cannot use monetary policy as a tool for na- tional purposes because mone- tary policy is oriented towards the euro area as a whole, decid- ed by the Governing Council of the ECB, in which the governor has a seat and vote. However, central banks can maintain fi- nancial stability through mac- ro-prudential policy, by ad- dressing systemic risks in the financial system. Here, Demarco said that the Central Bank will extend the coverage of the sectoral system- ic risk buffer to all property-re- lated lending. As it currently stands, the 1.5% buffer applies only to residential and buy-to- let loans. Demarco's first ECB Govern- ing Council meeting as Central Bank governor is scheduled for 5 February.