On Wednesday, the European Union (EU) took the first major step towards releasing a digital version of the euro, a contentious initiative that has been questioned by politicians and banks.
As a result of the proliferation of electronic payment methods and the resulting shift in how people spend their money, more than one hundred of the world’s central banks are investigating or preparing to implement digital currencies. These countries include China, the United States, Jamaica, and Japan.
The year 2020 marked the beginning of the process to develop a digital version of the single currency. At that time, Christine Lagarde, the President of the European Central Bank (ECB), proposed the concept, and her Frankfurt-based authority initiated a public consultation.
On Wednesday, the European Commission, which is the executive branch of the EU, released a proposal that will serve as the legal framework on which the European Central Bank (ECB) may establish a digital euro.
Individuals who currently reside in the euro region as well as those who are just visiting would have access to the money. It would provide an extra payment method for citizens to use with their digital wallets, both online and offline, making it possible for them to maintain the same level of anonymity as when using coins and banknotes.
The final law needs to have the support of all 27 member states of the EU as well as the European Parliament.
Fans of the digital euro argue that it will supplement currency and prevent the European Central Bank (ECB) from leaving a gap that will later be filled by private actors and foreign central banks who are not members of the EU.
Because the euro is already the second most traded currency in the world, this is not an area in which we can afford to fall behind the times. Valdis Dombrovskis, the vice president of the commission, stated to the press that it is necessary to move on with a digital currency.
The need for a digital euro is called into doubt by skeptics, and banks warn of huge hazards; meanwhile, a research conducted by the European Central Bank indicated that the general public is concerned about the privacy of their financial transactions.
Markus Ferber, a member of the European Parliament from Germany, stated that the European Central Bank and the Commission “have yet to make a compelling case” as to why we need the digital euro and what extra value it will offer.
– Benefits ‘outweigh’ costs The commission’s proposal warned that “the costs of no action can potentially be very large” and argued that the digital euro’s “long-term benefits… outweigh its costs.” The plan also stated that the “long-term benefits… outweigh its costs.”
In March, Lagarde stated that the digital currency was needed to “safeguard European payment autonomy” and that it was important for resilience.
She made the observation that many forms of payment are “not necessarily European,” and she added that relying on a single source of payment was “very unhealthy.”
Visa and Mastercard, two American giants, currently hold a commanding lead in the card payment sector worldwide.
Others, on the other hand, contend that the ambitions of the bloc will bring about difficulty unless the EU takes the necessary further actions.
Because clients might store their money in digital euro accounts and wallets, thereby removing it off the balance sheets of the banks, financial institutions have issued a warning about the possibility of a run on the banks.
The European Banking Federation issued a statement on Wednesday stating that adequate and firm limitations in holdings and transactions are necessary to protect banks from the risk of deposit flight and to limit the negative impact on banks’ ability to finance the economy. The statement was issued in response to the fact that it is crucial to set appropriate and firm limits in holdings and transactions.
According to the idea, there would be a cap placed on the amount of money that can be stored in digital euros by individuals. Officials from the ECB have proposed setting the limit at 3,000 euros ($3,300).
The status of “legal tender” will be bestowed upon the digital currency, which indicates that it is obligated to be taken as payment. Nevertheless, there would be several exemptions, one of which would be for locally owned enterprises that do not take any form of electronic payment.
The European Central Bank (ECB) is scheduled to provide a formal approval for a digital euro in the month of October, and it is anticipated that it would be available from 2027 onwards.
The European Central Bank (ECB) expressed its satisfaction with the commission’s proposal, which it described as providing “appropriate economic incentives for private intermediaries to distribute the digital euro as they do other digital means of payment, while preventing excessive fees for merchants.”
The European Central Bank has an uphill battle to earn the trust of Europeans due to privacy concerns.
The results of a public consultation indicated that protecting individuals’ privacy should be the top concern with regard to the digital euro.
In an effort to allay the concerns of the general public, the European Central Bank (ECB) has emphasized that it would not make any attempts to regulate how people can spend the digital money or use it for surveillance, as some observers have asserted may be the case in China.
During a news conference held in Brussels, the Financial Services Commissioner for the European Union, Mairead McGuinness, stated that the proposal being discussed for online payments is not a “Big Brother” scheme.
“The data privacy associated with the digital euro will be on par with that of other private digital ways of payment now in existence. When it comes to offline payments, the protection of personal information will be even more stringent.
According to the proposal put up by the commission, the digital euro “will be designed so as to minimize the processing of personal data by payment services providers” and the European Central Bank (ECB).