Digital Euro? According to the ECB, “A digital euro would be an electronic form of central bank money accessible to all citizens and firms – like banknotes but in a digital form. It is not meant to replace cash, but rather to complement it.”
Why a digital Euro and what are the benefits?
We are already kind of familiar with digital payments as we now make most transactions through our credit cards and smartphones which eliminates the need for a physical payment in cash. More places are now accepting cashless payment methods such as Apple Pay, Google Pay vice versa.
SO the Digital Euro will have the same kind of benefits as it will make our daily payments faster, easier and more secure.
It will support the digitalisation of the European economy and actively encourage innovation in retail payments. It also makes it more convenient for people to make the payments as they don’t need to carry physical cash.
When will it be ready?
I will explain a bit further into this article why it’s not very clear on when exactly the CBDC would be ready to launch in Eurozone. However, it says on the ECB’s website that they are already researching into the digital euro with relevant stakeholders and international partners.
They will decide by mid-2021 whether to launch a digital project or not (make no mistake they WILL)!. The ECB is saying that it would take time to develop a safe, accessible and efficient digital currency. As they want to ensure that the systems used will keep up with the needs of the people who use them.
Here is what the ECB president said in the press conference earlier this month.
“We are exploring the benefits, risks and operational challenges of introducing a digital currency. But this is high on the agenda.”
– Christine Lagarde, President of the ECB
"We are exploring the benefits, risks and operational challenges of introducing a digital currency. But this is high on the agenda."
– Christine Lagarde, President of the ECB #fintech #DigitalCurrency #crypto #blockchain #xrp
— XRP_Cro (@stedas) October 12, 2020
A lot of uncertainty around it, will this delay the Digital Euro?
Executive Board member Fabio Panetta said they are investigating into this matter and deciding whether the Eurozone actually “needed” a digital euro. He also mentioned that gaining the trust of the people in issuing a digital currency would be a challenge.
Releasing the digital euro doesn’t seem as easy as it is according to the ECB. It could depend on two main options, the first option would be to equate the CBDC in the form of digital banknotes, something that would allow the CBDC to function as and mirror banknotes, corresponding to a scenario of a non-remunerated retail CBDC.
Such a case would drastically limit and put a significant restriction on the CBDC’s characteristics.
Now the problem here that arises is that the issuance in the form of digital coins would require a consensus from Member States [TFEU Article 128(2)] as they are collectively responsible for the issuance of coins.
A legal act of the Council would also be required since they are collectively responsible for the adoption of new currencies.
However one of the bigger problems the ECB faces is the consequence of the CBDC achieving legal tender status as the difficulty of it being accepted as a form of payment in its current form.
To expand further what they are trying to say is Payees (people using this method of payment) would need to have the technical equipment to receive the payment in CBDC which raises the question of equal access.
So as we can see that this is a major that they face in trying to digitalise the Euro to everyone in the Eurozone as some might not be able to afford the minimum requirements to access this technology.
Furthermore, the EU is planning to launch the Comprehensive Crypto Regulation by 2024! (the crypto revolution will probably have completed by then)! in which the European Commission can put in place “very strong and very clear rules” on cryptocurrency.
This is because they want to educate the people the risks of dealing with these types of assets as they are very volatile. “We’re waiting for the Commission to issue very strong and very clear rules to avoid the misuse of cryptocurrencies for terrorist activities or for money laundering,” French Finance Minister Bruno Le Maire was quoted as saying.
There isn’t a lot of information yet on the digital euro and its technical aspects as they Euro still haven’t given this information out yet. All we do know is the euro belongs to the citizens of Europe, be it banknotes or digital as mentioned by the ECB.
The ECB is the custodian on their behalf. The question here is will the ECB be too late to bring out the Digital Euro?
Considering China has already done trials in Shenzen and well ahead in the race, which they will also be doing a trial in the winter Olympics. Also, the pace at which Bitcoins price is now picking up and other crypto assets are investing heavily in their technology and blockchains it raises a question whether the Digital euro would be competitive by the time it’s released? As there might be other coins already out by that time in the market which people might prefer to use a means of payments.