What you need to know about the digital euro

What you need to know about the digital euro

 

Preparations have been underway for years, and the next step towards the eventual introduction of a digital euro is well underway, with the European Commission set to present a legislative proposal that will provide the legal framework for a digital version of Europe's single currency. A draft document was circulated in mid-June. The European Central Bank (ECB) has already announced that it will decide whether or not to continue work on the digital euro. However, with so many digital payment options already available, some are asking: why do we need a central bank currency that we can't touch?

 

 

What does the bill say?

 

The European Commission wants consumers to be able to use a digital euro as a legal tender in future, in addition to euro bills and coins: "Notes and coins (...) alone cannot sustain the EU economy in the digital age. It is necessary to introduce a new, risk-free form of official currency. The absence of a widely available and usable form of central bank money, technologically adapted to the digital age, could also reduce confidence in commercial bank money and, ultimately, in the euro itself."

 

 

Will cash be abolished?

 

The guardians of the single currency have repeatedly stressed that the digital euro will only be a complement to bills and coins, and is not intended to replace cash. "We will continue to supply banknotes to citizens as long as there is demand," ECB Executive Board member Fabio Panetta recently confirmed in an interview.

 

 

What are the advantages of the digital euro?

 

In principle, digital payment methods enable transactions to be carried out in a matter of seconds, even across national borders. Unlike crypto-currencies such as bitcoin and ether, whose prices often fluctuate significantly, the introduction of a virtual European currency would offer private investors a more stable alternative, since it would be pegged to the euro on a one-for-one basis. The ECB would guarantee the stability of the digital euro.

 

 

How could the digital euro be structured?

 

This question is still under study. It is conceivable that banks could obtain the digital euro as cash from central banks in the euro zone. However, the digital euro would not be issued in the form of bills and coins, but would be credited to a digital wallet. It would also be possible to hold the digital euro directly on accounts at the ECB. According to the European Commission, basic payment functions should be free of charge for consumers. The digital euro should also be easy to use, including for the disabled and elderly.

 

 

What do commercial banks think of the digital euro?

 

Banks and savings banks fear that the ECB could become a competitor in payment transactions. "The discussion is really about whether the ECB itself should enter the payments market as a competitor. Should it manage accounts for end customers?" said Helmut Schleweis, President of the Savings Bank and Giro Association, at the Savings Bank Day held in Hanover at the beginning of June. "Should the ECB introduce programmable money - programming that could be used to manage payments politically and enable monitoring?".

 

ECB President Christine Lagarde, who spoke after Mr. Schleweis at the savings bank day, responded directly: she knew that some bankers saw the digital euro as a threat. "I want you all to understand that this is not the ECB's strategy. As central bankers, we are not in a position to nurture relationships, approach customers or negotiate products. That's something you have to do," said Lagarde. "The digital euro will be nothing more than cash in digital form.

 

 

What's the timetable?

 

The digital euro is not expected to be introduced before 2026 at the earliest. In mid-July 2021, the ECB decided to move on to the next stage of preparatory work: from October 2021, a two-year investigation phase will focus on technology and data protection, for example. At the end of 2024, the ECB Governing Council wishes to decide whether a preparatory phase for the development and testing of the digital euro should be launched, as ECB Executive Board member Mr. Panetta recently stated: "This phase could last two or three years. If the ECB's Governing Council and the European legislators - member states and members of the European Parliament - agree, we could introduce the digital euro in three or four years".

 

 

Do digital currencies exist in other regions?

 

According to information provided by the Federal Ministry of Finance in April, 114 countries worldwide are working on the development of so-called central bank digital currencies. In early February, for example, the UK Treasury and the Bank of England announced that they were studying the introduction of a digital pound. The Swedish central bank's e-krona project is relatively advanced in Europe, as banknotes and coins are hardly used in the Scandinavian country.

 

China has been working for some time on a digital version of its currency, the renminbi. "The Chinese digital renminbi (e-CNY), for example, already had more than 260 million users by the end of 2021," writes the German Federal Ministry of Finance in its April 2023 monthly report. "Eleven countries, including Nigeria and Jamaica, had already largely introduced the central bank digital currency by March 2023."

 

 

What do consumers think of the idea of a digital euro?

 

The majority of citizens are skeptical about the idea of a digital euro. In a survey published at the end of May on behalf of the European Banking Association, three-quarters of the 1,008 people questioned (76%) "strongly" or "somewhat" agreed with the statement that a digital euro was not necessary because existing payment options were perfectly adequate.


CSU MEP Markus Ferber also said, "Neither the ECB nor the European Commission have yet been able to plausibly explain what the concrete added value of the digital euro is for citizens." However, the survey also revealed that less than a third (29%) of those questioned currently have an idea of how a digital version of the European single currency could be designed and what use could be made of a digital euro.