Yesterday, the European Union kicked off the digital euro proposals focused upon ensuring cash is still accepted, whilst complementing cash with a digital version of the euro. The two proposals are summarised as:
- A legislative proposal on the legal tender of euro cash to safeguard the role of cash, ensure it is widely accepted as a means of payment and remains easily accessible for people and businesses across the euro area.
- A legislative proposal establishing the legal framework for a possible digital euro as a complement to euro banknotes and coins. It would ensure that people and businesses have an additional choice – on top of current private options – that allows them to pay digitally with a widely accepted, cheap, secure and resilient form of public money in the euro area (complementing the private solutions that exist today). While today's proposal – once adopted by the European Parliament and Council – would establish the legal framework for the digital euro, it will ultimately be for the European Central Bank to decide if and when to issue the digital euro.
Full details are here and a few choice quotes that go with this include:
“The digital euro will further strengthen the international role of the euro and provide consumers and businesses with a further, universal, digital payment solution.”
Thierry Breton, Commissioner for Internal Market
“Together with our proposal for a legal framework for a digital euro, today we are also taking action to safeguard the role of cash in our society.”
Paolo Gentiloni, Commissioner for Economy
“A digital euro would complement cash but not replace it.”
Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People
“By complementing cash, I have no doubt that a digital euro will bring advantages to citizens and businesses across the EU.”
Mairead McGuinness, Commissioner for Financial Services, Financial Stability and Capital Markets Union
What’s interesting is the emphasis on complementing cash. The EU is making it clear that a digital euro does not replace a physical euro. You can use both.
This discussion was further detailed in a Financial Times article this morning by Mairead McGuinness who, as mentioned, is the Commissioner for Financial Services, Financial Stability and Capital Markets Union. Here’s a snippet of her article:
“There are various forms of crypto: decentralised cryptocurrencies, like bitcoin, or so-called stablecoins, like tether, with a value usually tied to the US dollar. But the past year has clearly demonstrated that crypto is volatile and, unlike euro cash or a digital euro, is not backed by a central bank.
“Central banks worldwide, including the European Central Bank which is investigating a possible digital euro, are looking into issuing their own digital currencies. They’re asking questions such as how to make them work, what they could be used for, how to protect people’s privacy and how to make sure monetary policy and financial stability are maintained.
“Alongside this, the European Commission took two key decisions this week. First, a proposal on the legal tender of cash. We’re safeguarding cash as an accepted form of payment. But we also want to offer people an extra choice. So second, we will propose a law to allow the ECB to issue a digital euro, if it decides that would be worthwhile and workable. The digital euro would be a complement to cash, not a replacement.
“Like the physical euro, the digital euro could be used anywhere in the eurozone. It would have a similar function to cash — providing access to a reliable and easily accessible form of payment, but digitally. So, first, it would ensure that the euro continues to play a key role in our lives.
“Second, a digital euro could support financial inclusion. People without bank accounts or other vulnerable groups rely heavily on cash, which can put them at risk as cash is used less. The digital euro would give everyone a digital option to pay — and it could even be used without a bank account.
“Third, a digital single currency could support innovation. Europe’s current payment systems are national or international — we don’t have truly European options, and are overly reliant on companies such as Visa, Mastercard, or PayPal.”
It is clear that the digitalisation of money is coming and coming fast. Almost every country is looking at the digitalisation of cash:
A total of 130 countries representing 98% of the global economy are now exploring digital versions of their currencies, with almost half in advanced development, pilot or launch stages, a closely-followed study shows. The research by the U.S.-based Atlantic Council think tank published on Wednesday said significant progress over the past six months meant that all G20 countries with the exception of Argentina were now in one of those advanced phases.
The question is: why do we need a CBDC or digital euro if we have a global bitcoin?
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...