The European Central Bank (ECB) is considering the development of a digital euro, which would provide a public digital alternative to private bank deposits. Positive Money Europe supports the idea of a digital euro that is accessible, free, and respects privacy, while also being distinct from physical cash.
Currently, people have limited options for saving money, receiving salaries, and making payments, as they rely on commercial banks. The money in their bank accounts is virtual currency that represents a debt owed by the bank to its customers.
In contrast, public money issued by central banks is inherently stable. Physical cash, such as banknotes and coins, is the only form of public money that is accessible to everyone, including those without bank accounts. The ECB, along with other central banks globally, is exploring the introduction of a digital version of public money called the digital euro.
The rise of digital cryptocurrencies and distributed ledger technology (DLT) has prompted central banks to explore the digitization of monetary systems and the introduction of central bank digital currencies (CBDCs). The Bank of England was among the early adopters of this trend, investigating the possibility of launching its own CBDC in 2014.
DLTs, including blockchain technology, are often seen as the technological foundation for digitizing the monetary system and adopting CBDCs. They enable seamless transfer and settlement of assets on integrated platforms, making a strong case for their use.
The digital euro is a project based on blockchain technology. Its goal is to provide European citizens with a accessible, widely accepted, secure, and trustworthy means of payment in the digital age.
A digital euro would still be a euro, similar to physical coins and notes, but it would be a digital currency issued by the Eurosystem, which includes the ECB and national central banks. It would be accessible to all citizens and businesses and is intended to complement, rather than replace, physical cash.
The development of the digital euro is not only about current payment methods but also about anticipating future changes in the financial landscape. If central banks only offer physical cash while more people prefer digital payments, and if the only digital money available is privately issued, central bank money could lose its role in payments and disrupt the balance between public and private money. This could destabilize the entire monetary and financial sector.
Additionally, there is a risk that non-European digital payment solutions operated by foreign entities could dominate the payment landscape, as has been seen in areas like card payments and online transactions. This risk is compounded by the expansion of payment options by tech giants, which could raise concerns about autonomy, privacy, and European sovereignty.
Furthermore, major economies around the world might introduce their own CBDCs, which offer advantages in efficiency, scalability, liquidity, and security. Not introducing a digital euro could jeopardize the euro’s international influence and pose additional sovereignty risks.
To address these potential scenarios, action is needed to provide clarity regarding digital money and crypto-assets. Unbacked crypto-assets lack stability and scalability, resulting in slow and costly transactions, and some even have environmental and societal drawbacks. Stablecoins are susceptible to runs, as seen with algorithmic stablecoins. Closing regulatory gaps in the crypto-asset ecosystem is crucial, and institutions like the European Parliament play a vital role in establishing a robust regulatory framework.
To prevent confusion surrounding digital money, the central bank needs to offer its own digital currency. This would meet the growing demand for digitalization and provide a stable foundation in the evolving world of digital finance.
The concept of a digital euro is a prominent topic within the Eurogroup’s agenda. The Eurogroup initiated discussions on the implications of a digital euro in July 2021, guided by insights from the ECB and the Commission. These discussions focus on policy objectives, privacy considerations, the impact on the financial system and cash usage, and the broader digital euro ecosystem.
The Eurogroup released statements in February 2022 and January 2023, emphasizing the significance of the digital euro as a European initiative rooted in democratic principles and supported by the European public. The key principles endorsed by the Eurogroup include complementing physical cash, ensuring safety and accessibility, balancing privacy and compliance, incorporating an offline function for financial inclusion, safeguarding financial stability, and fostering interoperability with other CBDCs.
A blockchain-based euro offers advantages such as programmability, resistance to manipulation, enhanced security, and efficiency gains. These advantages have the potential to transform financial systems, particularly in the context of the machine economy and cross-border payments.
The Eurogroup’s involvement in developing a digital euro demonstrates its commitment to a resilient and efficient monetary and payment system in Europe. Collaboration between public and private entities is essential for successful implementation, similar to the coordinated efforts during the transition to euro cash.
Addressing regulatory gaps, promoting financial inclusion, and safeguarding privacy are crucial as we explore these technological advancements. Embracing the digital euro and stablecoins while maintaining a strong regulatory framework will be essential in reaping their full benefits.
In conclusion, the digital euro and stablecoins represent promising advancements in finance, offering new opportunities and challenges that will shape the future of monetary transactions and payments. The potential benefits are far-reaching, from strengthening European autonomy to fostering innovation and improving the lives of citizens and businesses.