2023-10-18 15:10:00
What is a digital euro?
Like banknotes and coins, the digital euro would have the particularity of being issued by the European Central Bank. Don’t panic, this digital version would coexist with cash, without replacing it. “In a context where individuals are increasingly abandoning cash, it is essential to ensure their access to central bank money in digital format,” explained Evelien Witlox, director of the program dedicated to the digital euro of the BCE, a few weeks ago, as part of a conference organized by the National Bank of Belgium (BNB).
The European authorities thus distinguish between central bank money, issued by a public institution, and therefore guaranteed by the public sector; private money, that of commercial banks. This coexistence is important because public money constitutes an anchor point for the monetary system.
How would this digital currency work?
You might use the digital euro to make instant payments online, in stores and between individuals across the eurozone.
This system should work regardless of your country of origin, the one in which you are located, and independently of your bank. “An example: I work in Frankfurt with colleagues from different countries. With the digital euro, as part of an “followingwork”, I can share the bill with them without problem. Another illustration: when I travel and I go to a restaurant, my bank card may not go through. This situation cannot happen with the digital euro”, says Evelien Witlox. Note that at this stage, it is only a question of payments, and not investments.
The support used to use this electronic money is, moreover, still under study. A priori, the Eurosystem (Editor’s note: body of the European Union which brings together the European Central Bank and the national central banks of the EU member states which have adopted the euro) might develop a specific application for the euro digital.
In addition, intermediaries, including banks, would integrate digital euro services into their existing applications. The idea of a physical card is also being considered for people without access to a bank account or digital devices.
Who might use the digital euro?
The digital euro aims to be particularly inclusive. It must be made available, free of charge, to all people established in euro zone countries. Access to basic services would also be offered to people who do not have a bank account. The ease of use of this payment method is one of the guidelines of this project.
How can this electronic money interest individuals?
“The objective of the digital euro is really to make our lives easier,” continues the ECB expert. Because there is currently no universally accepted digital payment method throughout the eurozone.
The digital euro would also be available at any time, online but also offline, an asset when connectivity is lacking. Unlike certain digital tools, the idea here is to leave no one behind, by opting for great ease of use. “We will also guarantee a very high degree of security and confidentiality,” underlines EvelienWitlox.
Respect for privacy is particularly important for European authorities who stipulate that “the Eurosystem has no commercial interest in exploiting data relating to individual payments or in sharing them with third parties. It would therefore not wish to have knowledge nor store users’ private information.”
Why did the European authorities launch this project?
The success of cryptocurrencies as well as the emergence of privately initiated digital currencies, such as Facebook’s Libra, have obviously not escaped the European authorities. This is a threat. If these giants manage to impose their currency, the risk for Europe would be to lose control of monetary policy: “Large technology companies might provide their large clientele with global stablecoins (Editor’s note: stable cryptocurrencies) which might grow quickly, increasing the risk that our payments market will be dominated by non-European solutions and technologies,” the European Central Bank recently detailed. Thus, the digital euro would reduce Europe’s dependence on non-European private payment service providers.
Note also that 90% of central banks in the world are exploring the idea of a digital currency. Eurozone countries hope to be among the forerunners. “This currency would promote innovation, improve the efficiency of payments and support the overall economic efficiency of the European Union.”
What deadline?
This electronic money project is not recent: the ECB in fact launched the investigation phase of the digital euro in October 2021. The preparatory phase, which has just been recorded this Wednesday, will begin on November 1, 2023 for a duration of two years. This will include a whole series of tests and experiments in order to develop a digital euro that meets both the requirements of the Eurosystem and the needs of future users. It will also be a matter of selecting suppliers capable of designing a platform and infrastructure for this digital currency. At the end of this phase, the Governing Council will decide whether or not to launch the next phase of preparations to pave the way for the possible issuance and deployment of a digital euro.
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