In an era where digitalisation has taken hold of nearly all aspects of our daily lives, the European Central Bank is studying the possibility of creating a fully digital European currency – the digital euro. According to ECB, the digital currency would be a fast, easy and secure instrument for everyday payments, accompanying the digitalisation of the European economy and actively encouraging innovation in retail payments.
A digital euro would still be a euro, like the notes and coins currently issued, but digital. It would be an electronic form of money issued by the ECB and the national central banks and accessible to all citizens and businesses.
The aim is to ensure that eurozone citizens can maintain cost-free access to a simple, universally accepted, secure and reliable means of payment.
According to the ECB, the aim is not to replace cash, but to complement it. In other words, access to cash will continue to be ensured throughout the euro area. The digital euro would only be an additional payment choice, contributing to accessibility and inclusiveness. The aim is to combine the efficiency of a digital payment instrument with the security of central bank money.
The advantages inherent to this digital currency would certainly include the creation of a solution for people who currently prefer not to use cash, as well as an end to the dependence on digital means of payment issued and controlled from outside the euro area, which could undermine financial stability and monetary sovereignty.
In line with the use of any instrument of a digital nature, the protection of privacy would be a key priority if the digital euro is to help maintain confidence in payments in the digital age.
This is still a project in its early days: launched in July this year, as the ECB reinforces, the end of this project will not necessarily result in the issuance of this currency. Rather, the Bank is merely preparing for the possibility of issuance in the future. In fact, the research phase will start in October of this year, and will last for about two years. During this period, it will analyse how a digital euro could be designed and distributed to traders and citizens, as well as the impact it would have on the market and any necessary legislative changes. It will be at the end of this phase that the ECB will decide on the future of this currency. If so, the next phase would involve creating and testing possible solutions, together with banks and companies which could provide, inter alia, payment technology and services.
On a positive note, the ECB reports that the experimental work done so far has shown that there are no major technological constraints to issuing a digital euro and that there are many ways to design it.
It should be noted that the digital euro would not be a cryptocurrency, but a completely different currency, since it would be backed by a bank, which is not the case with cryptocurrencies. Indeed, their prices are often volatile since there is no public institution to back them. Their value can rise or fall drastically in a short period of time. In the case of the digital euro, anyone using this currency could have the same level of confidence as with cash, since both would be backed by a central bank.
If this project is to be fulfilled, experts from the ECB and the euro area national central banks have defined a number of key requirements for a digital euro: accessibility, robustness, security, efficiency, privacy and legal compliance. These would be the basic principles by which this currency will eventually be guided.
The digital euro would be designed to work in conjunction with existing payment solutions, making it easier to provide pan-European solutions and additional services to consumers.
Given the dramatic change that payment methods are currently undergoing, the digital euro would be a possible European solution to cope with the digital changes happening in our daily lives.