Digital Euro (CBDCs): Closer To Reality Than You Think

The ECB (European Central Bank) has published a report stating
the digital euro is getting closer to be launched. It gives an overview of a
possible roadmap for implementing the digital euro as well as the advantages and disadvantages of a digital currency in the euro zone.

The report comes a couple of days after the Federal Reserve
System (FED) announced a collaboration with specialists from the Massachusetts Institute of Technology (MIT) within the field of digital currencies.

E-Euro supposed to be better than the current system

Digital currencies promise many advantages for users - and
Europeans should not lose access to money in an increasingly digital world.
For example, if online transactions are temporarily not possible due to traffic overload, offline transactions would also be a possible alternative. If consumers use less cash, the e-euro could also help. The digital currency could also drive competition in Europe.

What is the timeline and roadmap for the e-Euro?

The central bank must first develop the legal and operational framework for this and deal with issues such as efficiency, security or privacy in transactions. Other open questions are access to digital currency and the expectations and needs of Europeans. The working group would also like to clarify legal questions in order to prevent illegal activity, because supposedly digital currencies are supposed to promote terrorist financing and money laundering.

However, the central bank remains as vague as before:
"If it should prove necessary in the future, we must be ready to introduce
the digital euro," said the Lagarde. For example, should Europeans
use foreign money more often, such as B. digital currencies of other countries or the Facebook stablecoin Libra, the European solution would be preferable in this case.
The ECB announced that it would make a decision on a
possible e-euro in mid-2021 or whether it would issue a digital currency
(Central bank digital currency, or CBDC for short).

While head of ECB, Christine Lagarde, tried to get the
younger generations excited about the digital euro and the European monetary policy, the tweet backfired: Younger generations in particular responded to the overtures that they prefer Bitcoin and that they have lost confidence in the central bank and its monetary policy.

Outlook

In the coming year, the European Central Bank plans to carry
out specific tests in order to test the strengths and weaknesses of the e-euro.
At the moment there are no statements about operational costs and how the implementation would actually work.

The EU could also become a pioneer in the field of cryptocurrency
and blockchain regulation after the EU Commission proposed a legal framework with which competitiveness and innovation should be strengthened. There are also talks in the States and China about introducing a CBDC. But digital currencies are still questionable and a controversial topic because of the centralization involved. Many questions in connection with monetary policy, data protection, financial stability and security are still open and an informed decision about the introduction of the e-euro could only be made once these have been clarified. However, so far a complete switch to a digital currency has not been discussed yet.

Image by moritz320 from Pixabay

Disclaimer: The author of this article is affiliated with Liquidary and Autowhale