Does Europe really need a 'digital euro'?
The EU has taken a crucial step towards launching a digital version of the euro, a controversial project that has come under attack from the public, politicians and banks before it has even been unveiled. RFI takes a look into what Brussels hopes and believes will be 'the next big thing' for the Eurozone.
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From China to the United States, Jamaica to Japan, dozens of central banks worldwide are exploring – or have already put in place – digital currencies as electronic payments are coming to dominate the way people spend their money and cash usage dwindles.
The first move to create a digital version of the single currency began back in 2020 when European Central Bank President Christine Lagarde suggested the idea and the Frankfurt-based institution launched public consultations.
Digital currency enthusiasts say it will complement cash and ensure the ECB does not leave a gap that could be filled by private, usually non-European, players and other central banks.
However, critics question the need for a digital euro and banks have warned of major risks, while the ECB's own study found the public was primarily concerned over payment privacy.
The digital euro will become the Central Bank Digital Currency for countries in the European Union's Eurozone area.
It will operate like cryptocurrencies but with some unique features.
The proposed digital euro will be a virtual currency that:
- will have legal value guaranteed by the European Central Bank
- can be used alongside cash to make payments across the 19 countries that make up the Eurozone
- will provide a fast, secure payment method, with fiscal privacy promised by the ECB.
- can be used by both businesses and private citizens.
Last Wednesday, the EU's executive branch – the European Commission – published a proposal that will become the legal foundation upon which the ECB could launch a digital euro.
The final law must be backed by the EU's 27 member states and the European Parliament.
If everything goes to plan, the ECB will give the formal green light to a digital euro in October and the expectation is that it will be available from 2027 onwards.
Benefits 'outweigh' costs
According to the draft proposal, the commission noted the digital euro's "long-term benefits... outweigh its costs" and warned "the costs of no action can potentially be very large".
The currency would initially be available to individuals living in the Eurozone.
In March, Lagarde argued that the digital currency was important for resilience and to "safeguard European payment autonomy".
Many of the current means of payments are "not necessarily European", she remarked, adding it was "very unhealthy to rely on one single source of payment".
Fundamentally, her comments are in line with the EU's greater focus on bringing production to Europe or nearer to the bloc and moving away from relying on third countries.
The euro is a symbol of Europe’s unity and strength.
— European Commission (@EU_Commission) June 28, 2023
For more than two decades, people and businesses have been accustomed to paying with euro coins and banknotes.
And this would not change with a digital euro ↓
What will the digital euro look like?
The digital euro will be known as Cash+ and will be accessible to EU citizens – who will be able to accumulate up to €3,000 to €4,000 of the currency – and is intended to become a secure means of payment for retailers.
Unlike cryptocurrencies – such as Bitcoin, which have no entity that creates and distributes them – the digital euro will be issued by the European Central Bank.
There are similarities, however, as the digital currency will use blockchain technology that drives cryptocurrencies and can also be stored in a digital wallet, without having to open a bank account.
Brussels hopes that its development will reduce EU dependence on foreign payment systems, namely US giants Visa and Mastercard who currently dominate the global card payment market.
However, others argue the EU's plan to launch a digital currency spells trouble – especially for banks.
In March, the European Banking Federation warned of the "significant risk for banks" because of the potential for bank runs as customers could hold their funds in digital euro accounts and wallets, moving them away from the banks' balance sheets.
Is it secret? Is it safe?
As things stand, the ECB has to contend with a degree of public mistrust because, technically, the European Union will be able to find out about all payments made more easily than at present, where a banking intermediary has to go through a number of procedural steps before it can access fiscal information.
And that's without mentioning hard cash and its total guarantee of anonymity.
The Brussels proposal is intended to be demanding in terms of privacy protection, even though it has explained in the past that exceptions could be made in cases such as money laundering or tax fraud.
The EU has also added that Cash+ would not be programmable, meaning that it would not have an obsolescence date and would not be reserved for the purchase of specific products.
The Commission also underlined the digital currency would be granted "legal tender" status, meaning it must be accepted as payment.
The DEA Community is confident about a #digitalmoney issued by a #centralbank or commercial bank. Amnon Samid also gave us his opinion. Thank you to everyone who participated, and stay tuned for the next DEA Question of the Month! pic.twitter.com/NmWH0aFE6t
— Digital Euro Association (@DigiEuro) June 28, 2023
Will it succeed?
That's hard to say. Once the groundwork has been laid, the document will be sent to the European Parliament.
Meanwhile the ECB has a difficult battle ahead to win over European scepticism regarding privacy.
To calm people's fears, the ECB has stressed it will not use the digital currency for surveillance – as critics claim is the case in China.
But now the digital ball is rolling, it is difficult to see it losing momentum before its predicted launch in four years time.
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