Here comes the digital euro: European Central Bank is experimenting with...

A digital euro, what is that again?

Take a gamble. You have a credit card, a debit card, perhaps some change in your pockets, and most likely apps like Apple Pay or Payconiq on your smartphone. Plenty of resources to lose your money. And yet a new payment option is on the way. The digital euro, already dubbed the ‘Deuro’ by some. This digital euro would become the electronic version of the familiar banknote. The issuer of both the paper and the digital euro is the same, the European Central Bank (ECB).

That ECB is now investigating the possibilities of the digital currency. An electronic currency that must be accessible to all European citizens and businesses. A few days ago, the ECB published a 55-page research report on this development, which – if the project gets the green light – could probably see the light of day around the summer of 2021. Until 12 January, you as a European citizen can complete a public survey via the ECB website and indicate what you think.

Why do we need another payment method?

The ECB is not primarily concerned with the consumer. It’s about the stability of the financial system, and so to trust. The money in your account is actually a credit that you have in the bank. That is called private money. You can exchange that into public money, which you do when you withdraw banknotes. That swapping goes under normal circumstances… normally. But in a natural disaster, pandemic, or financial crisis, you often see people standing in lines to exchange their money and keep it as notes. People do crazy things more often when confidence fades. This could undermine financial stability or monetary sovereignty in the eurozone. Remember the long lines at Greek ATMs during the crisis in 2015, which nearly heralded the end of the euro.

With the digital euro, our private money is safe, because it is in the hands of the ECB. That bank of banks cannot go bankrupt, it has that ahead of the other commercial banks. An additional reason why this digital euro should be introduced is to keep access to payments and the costs thereof low. We all pay less and less with cash. Without cash, banks and other payment companies will have an oligopoly on that payment system. The tech giants are also preying on our electronic wallet. Consider, for example, , which wants to set up its own payment system with its own currency – the libra.

Is the ECB the only bank doing this?

No, rather the last. The US central bank, the Federal Reserve (Fed), is also doing its homework on the CBDC or Central Bank Digital Currency. Jerome Powell the Fed Chairman shined his light earlier last week. “It takes time and a lot of work to develop a digital dollar and involve every stakeholder in it. It is more important for America to properly prepare for this process than to be the first. ”

It seems that China will become the first superpower to have its own digital currency. China’s central bank, the PBoC, is already in the testing phase of its digital yuan. On Sunday, October 11, the central bank in the city of Shenzen distributed some 10 million yuan among 50,000 people. The money was in an electronic wallet dropped and it could be released in several thousand selected stores. The central bank of the Bahamas issues the Sand dollar. This allows citizens to open an account to carry out transactions with that Sand dollar. And the Marshall Islands are experimenting with the Sovereign (SOV), making them less dependent on the dollar. Closer to home, Sweden has been thinking about a so-called ‘e-krona’ for some time.

Will the digital euro replace cash??

That is explicitly not the intention, says the ECB. It will not be a replacement for cash, but an additional alternative. Germany in particular is at the forefront of this struggle. Cash money can, for example, still be kept at home free of charge in times of negative interest – although this may not be a good idea for security reasons. The ECB could settle this negative interest rate directly on the digital euro.

Another tricky topic is privacy. You can trade anonymously with cash. This property is impossible with the digital euro, if only because of the strict rules against money laundering. That is one of the themes the ECB is grappling with: personal data in the hands of authorities. The tech-savvy minds within the ECB are currently puzzling over the development that guarantees privacy and security in an ideal marriage. Moreover, there is another issue that needs to be resolved: how do you avoid a general bank run in which people during a financial crisis turn their money in the bank into secure digital euros at the ECB? Thus, the ECB itself organizes the implosion of the entire financial system, causing such a crisis one selffulfilling prophecy is becoming. The central bank nuances this risk by screening with a maximum amount that can be converted into digital euros. Although there is still homework on it.

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