What is the future of Digital Euro?

• The European Union is now planning to propose a digital euro bill in 2023.
• Nations, including Canada and China, have started pilot programs based on distributed ledger technology that is designed to compete with fully-centralized private currencies.
• It remains unclear whether if digital euro would be built on blockchain technology

The digital Euro: Future Plans

The European Central Bank (ECB) has confirmed it will hold a closed-door meeting with members of the European Commission (EC), European Parliament (EP), and the World Bank in February of 2023 to discuss the future of currency, and is taking a collaborative approach towards the process.

The EU Commission’s plans to move forward with a bill is the most definitive sign so far that a digital euro could become a reality in the near future. Since last year, the ECB has been giving mixed signals about this potential development. In September, just before the ECB’s two-year investigation into a digital euro kicked off, an ECB official said it wouldn’t guarantee the launch of such a currency. Later, ECB executive board member Fabio Panetta said it ‘likely’ would be considered legal tender if launched.

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With the increasing popularity of alternative cryptocurrencies like bitcoin, countries have begun to take notice. Nations, including Canada and China, have started pilot programs based on distributed ledger technology that is designed to compete with fully-centralized private currencies. One such example is the Nigerian naira digital exchange model. Nearly half of the central banks in Europe have also announced plans to launch CBDCs by 2019 as a solution for financial problems that arose during the recent U.S. debt crisis, following a plan proposed by French President Francois Hollande in 2013. ECB chief Christine Lagarde has recently responded positively to such news and has declared that unless European countries move swiftly to develop this kind of currency, they will be left behind their American counterparts in adapting to modern economic problems and challenges that arise with existing fractional reserve systems of central banking.

While the Digital Euro Association (DEA) is advocating for a digital currency in the European Union, other researchers are saying it may not be later accepted as payment by individuals and businesses in the region.

“Digital tools like ApplePay and Blockchain-based tokens may not be a game-changer in their own right, but they could open the door to countless use cases that make our everyday lives easier,” Heike Mai, an analyst at Deutsche Bank Research, wrote in a report last year.

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What the public wants

The results of the Commission’s first public consultation on a digital euro revealed that citizens in the EU believe security, privacy and the ability to use digital euros in payments across the bloc’s 27 member states are important issues for a project like this. It also remains unclear if this would be built on blockchain technology.

“The ECB has always pushed for the EU to have its own form of digital currency for payments. So as the main goal is to focus on managing a payment system, and to the question of whether or not that will be based on blockchain technology, it’s still up in the air,” Mai said.

Conclusion

The ECB must consider the possibility of a digital cryptocurrency that can make transactions faster, cheaper, and more secure. The report previously stated that an ECB-issued digital currency could “not substitute for cash” and would need to be supported by a central bank’s backstop.

The European Central Bank (ECB) plans to lower the risks of holding virtual money by remunerating digital euro holdings at a variable interest rate. It will also limit the number of digital euros that users can hold or use under transactions over time, as withdrawing in a negative interest rate environment results in huge losses. For example, non-interest-bearing money is used by internet supermarkets and social media companies to attract customers.

The possible argument against a digital currency issued by the ECB may be that it won’t have any distinct advantages over private payment systems like PayPal or Google Wallet. On top of this, a central bank’s digital currency might not be widely used as a means of payment for the general public.