We are entering the era of digital currency, which is gradually emerging in response to the evolution of technology and the gradual mass adoption of these types of currencies. Therefore, from the European Union comes the proposal of the E-euro: the project of a digital currency issued by the European Central Bank.
The European Parliament, the European Commission, the European Council, and the Eurogroup encourage the development of a new digital currency, stressing its importance in order to create a highly innovative financial sector and a highly resilient payments system. The aim is to hypothetically launch the new digital currency after a two-year testing phase.
The E-euro project steps
On July 14, 2021, the Governing Council of the ECB decided to launch a project for the possible introduction of the digital euro with the main objective of developing a solution in line with the needs of the payments system. The final decision on the actual issuance of the digital euro will be taken at a later stage, being understood that the new digital currency would work alongside cash, without replacing it. The launch of such a project follows an exploratory phase that began in September 2020.
- The Digital Euro Report
The first step, in October 2020, was the publication of the Eurosystem’s Digital Euro Report , which laid the groundwork for the project and identified the reasons that may make it necessary to issue a digital Euro. The Eurosystem task force on the digital currency of central banks has started an experimental work in order to evaluate further insights on the technological feasibility of the project choices identified in the Report, grouping them into 4 main areas of analysis: the digital euro ledger, privacy, and anti-money laundering, the limits of the digital euro in circulation and the final use by users.
- The public consultation on the digital Euro
The second step after the publication of the Eurosystem report was the launch of a public consultation on the digital Euro, the results of which were presented on April 14, 2021. The responses received emphasized that both individual users and businesses consider privacy, security, and broad usability to be the most important aspects of a digital euro.
Strengths of the E-euro
– With cash, all euro-area citizens have access to a cost-free, secure, and universally accepted means of payment. With the digital euro, all euro-area citizens have access to secure and universally accepted payments, including payments made online or by digital means: a digital Euro would reduce the cost of transactions and promote financial inclusion, stimulating further approach to Blockchain technology by governments, banks, institutions.
– The digital Euro would be very secure. Like cash, it would represent a claim on the central bank and would therefore have no liquidity, credit, or market risk.
– Being offered by the central bank, the digital Euro would protect the privacy of citizens, protecting it from the exploitation of information for profit and intrusions.
– A digital Euro would encourage innovation and stimulate competition, enabling both small and large intermediaries to improve their service offerings. By providing products that include access to the digital Euro, European players could raise the quality of the products they make available to the public, remaining competitive despite the steady expansion of global technology giants in financial and payment services.
– The digital Euro would safeguard the central role of central bank currency in the payments system, strengthening Europe’s autonomy in the digital age.
Questions still open
– The introduction of a new form of central bank currency requires defining the necessary operational and technological requirements, precisely identifying the technical characteristics that are still to be analyzed.
-The definition of how to ensure that the digital Euro can be used as a means of payment and not as an investment instrument, in order to avoid risks to financial stability.
– A further question concerns the possibility of using the local memory of users’ devices to make offline payments. These and other decisions are closely intertwined and will require consistent choices to ensure system efficiency and functionality.
The work carried out so far has highlighted the many potentialities of a digital Euro. It will have to be decided whether a decentralized or decentralized technological infrastructure will be preferred, however it will be in any case under the control of the Eurosystem. The digital Euro, should it be created, will be successful first if it brings advantages to those involved: citizens, traders and financial intermediaries. The Eurosystem will carry out this project with the utmost caution, in line with the objective of preserving both monetary and financial stability, but also with that of evolving the monetary landscape in favor of its users.