ECB inches closer to ‘digital euro

Written by on July 14, 2021

The European Central Bank is expected to take the next step towards a “digital euro” Wednesday by launching the project’s exploration phase, but questions remain about potential pitfalls and benefits for eurozone citizens.

The move comes as the coronavirus pandemic has hastened a shift away from cash, and as central bankers around the world nervously track the rise of private cryptocurrencies like bitcoin.

Here’s a look at what a digital euro would mean for the 19-nation club.

What is a digital euro?
A digital euro, sometimes dubbed “e-euro”, would be an electronic version of euro notes and coins.

It would for the first time allow individuals (and companies) to have deposits directly with the ECB. This could be safer than with commercial banks, which could go bust, or than holding cash that could be stolen or lost.

he ECB has promised that any future digital euro would be “a fast, easy and secure way” to make payments. The service would be free and payments could be made by card or smartphone.

This would allow the Frankfurt-based institution to compete with foreign card companies such as Visa and Mastercard or digital payment services like PayPal, sectors where no strong European players have emerged.

A digital euro would “complement cash, not replace it”, the ECB has stressed.

The ECB is still studying which technology is best suited to develop the digital currency.

The ECB has promised that any future digital euro would be “a fast, easy and secure way” to make payments. The service would be free and payments could be made by card or smartphone.

This would allow the Frankfurt-based institution to compete with foreign card companies such as Visa and Mastercard or digital payment services like PayPal, sectors where no strong European players have emerged.

A digital euro would “complement cash, not replace it”, the ECB has stressed.

The ECB is still studying which technology is best suited to develop the digital currency.

Why now?
The Covid-19 pandemic has accelerated a decline in the use of cash as customers try to avoid contact.

The ECB is also wary of falling behind virtual money issued by private actors like bitcoin and Facebook’s yet-to-be-launched diem, formerly known as libra.

And there’s pressure to keep up with digital currency pilot projects launched by other central banks, before the ECB misses the boat and consumers end up putting their money elsewhere.

What are the risks?
Citizens might avoid traditional accounts in favour of going digital, weakening retail banks in the euro area.

The risk would be higher in times of crisis, when savers might be tempted to flee to the safety of a digital euro and trigger a run on banks.

To avoid this, the ECB will likely cap the number of e-euros people could hold in digital wallets, with executive board member Fabio Panetta suggesting a threshold of around 3,000 euros ($3,500).

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