EU unveils plans for digital euro, promising complete privacy
Senior Writer, Forum Agenda
- The European Commission has paved the way for the introduction of a digital euro.
- A total of 130 countries, representing 98% of global GDP are currently exploring central bank digital currencies.
- A global set of standards will help govern and streamline transactions worldwide as central banks prepare to launch digital currencies, the World Economic Forum says.
Move over crypto. Europe has moved one step closer to a digital euro.
The European Commission has unveiled a legal framework that paves the way for the introduction of an electronic currency across the 20 member states that use the euro.
Here’s what to expect with this new digital currency:
How will the digital euro work?
The European Central Bank is tasked with securing the nuts and bolts of the digital euro, which it says could complement cash and be launched as soon as 2027.
“With the digital euro, people will be able to pay in ‘public money’. Uniquely, they will be able to pay both online and offline,” Valdis Dombrovskis, the Commission’s Executive Vice-President said during a press conference, according to Euronews.
The digital currency would be stored in a digital wallet and could be used for online and offline payments, meaning they could be made from device to device without an internet connection, such as from a remote area or an underground car park.
“It would be safe and secure, instant and convenient – online and offline – offering more consumer choice alongside with private digital payment options such as cards and apps.” Dombrovskis has explained.
What’s driving this move?
There are multiple drivers for this shift. Firstly, such an approach can help safeguard public money in the face of a surge in cryptocurrencies like Bitcoin.
Advocates of central bank-operated currencies argue that having a centralized authority provides stability and allows for monetary policies to address economic challenges – unlike decentralized and unregulated cryptocurrencies known for their high volatility.
Risks to the stability of the financial system – where people withdraw large amounts of money from the banking system to put into their digital wallets – are minimal, a study for the Commission has found. Take-up of less than 3,000 euros per household would not pose any significant risks to financial stability, according to the researchers.
Digital currencies also help countries adjust to the increasing digitalisation of the global economy, and the efficiencies that brings, while strengthening the international role of a particular currency.
Lastly, the move responds to the increased use of digital money such as online payments and cash and cards since the COVID-19 pandemic. Commission data shows that 55% of EU citizens prefer paying cashless, 22% favour cash while 23% have no preference.
Where else have digital currencies launched?
According to the Atlantic Council, 11 countries have fully launched a digital currency. China was the first major economy to launch a pilot in 2019, which currently reaches 260 million people and is being tested in over 200 scenarios, some of which include public transit, stimulus payments and e-commerce.
Progress in the US has stalled on the consumer side but accelerated on the wholesale banking side, the Atlantic Council says, reflecting a surge in cross-border wholesale CBDC projects since Russia’s invasion of Ukraine.
A total of 130 countries, representing 98% of global GDP, are exploring a central bank digital currency (CBDC), the Atlantic Council digital currency tracker has found. That’s an almost fourfold increase from May 2020, when only 35 countries were considering them.
Aside from the convenience a digital euro might offer, it will also address privacy concerns.
Currently, private issuers of stable coins and crypto assets can use people’s personal data for commercial purposes. By contrast, spending the digital euro will be like spending cash taken out of a bank machine.
“Nobody would be able to see what people are paying for when using the digital euro offline,” the Commission said.
“Banks, not even the ECB [European Central Bank], would not see or be able to trace, people’s personal details or data,” the commission added at a press conference.
Who makes sure it works?
With most of the world’s central banks en route to launch their new digital currencies, leaders acknowledge the need for cooperation to develop a system that is stable and workable.
A global set of principles is needed to govern, collaborate and oversee interoperability, according to the World Economic Forum’s latest report on CBDC currencies.
“There is a call to action to continue this conversation and form a set of standards that can be applied readily and overseen and enforced by an agreed-upon entity,’’ the report says.