Will there be a digital euro in the middle of this decade?

Will there be a digital euro in the middle of this decade?

The European Central Bank (ECB) is working to create a digital version of the euro as cash use declines and China intensifies experiments with the digital renminbi.

On Wednesday the ECB announced a biennial investigation into “key issues related to the design and diffusion” of a digital euro and its possible impact on the market. A final decision on the introduction of a digital euro will be made at a later date.

“With the digital transformation underway, which has the potential to transform the payments landscape and even the entire financial system, central banks need to be bold and keep up with the change.“, Said Fabio Panetta, Member of the Executive Board of the ECB.

The digital euro will not replace cash, but it will work similarly. Instead of paying for goods or services with paper money, Europeans can use some form of cryptocurrency issued by the ECB or national central banks for a digital wallet.

Panetta said the ECB will start developing a digital euro after the investigation period is over. The next process, which could take around three years, should put Europe on the right track to possibly adopt a digital currency by 2026.

Why is Europe acting?

The ECB admits “many questions still need to be answered“before the introduction of the digital euro. However, the central bank believes that careful study is needed toEnsuring that citizens and businesses have access to the most secure form of money, central bank money, even in the digital age“Said President Christine Lagarde in a statement.

The ECB is clearly concerned about the consequences of waiting too long.

In a speech last month, Bank of France Governor François Villeroy de Galhau said central bank money could be crowded out as the use of cash and digital currencies and emerging tokens declined. Europe started looking more seriously at the digital euro after Facebook announced it would create a digital currency in 2019.

Villeroy also highlighted China’s progress in adopting the digital renminbi, which is now available in several Chinese cities.

“The obvious risk is that Europe will lose momentum not only in its efforts to strengthen the international role of the euro, but even in maintaining it. The challenge here is also a geopolitical concern“, he said.

However, some experts are skeptical of the need for a digital euro, as many consumers are already doing transactions with credit cards, debit cards or mobile payment services.

“I’m a little skeptical that people really need this coin“, Said Grégory Claeys, Senior Fellow at Brussels-based consultancy Bruegel.

Federal Reserve (Fed) officials in the US are also discussing the possibility of creating U.S. dollar digital, although they are more cautious than their European counterparts.

Last month, Randal Quarles, the Fed’s vice president, said any proposal to create a central bank digital currency (CBDC) must be of a high standard.

“Before we start with the new coin, I think we need to stick to the carefully analyzed CBDC promises.“, he said.

Noting that the dollar was already highly digitized, he opposed the notion that the US must act just because other countries do it first.

“It seems unlikely that the status of the global reserve currency U.S. dollar or its dominant role in international financial transactions is jeopardized by a foreign CBDC“Quarles said.

Nha Thanh (According to CNN)

FILI