The Digital Euro is the project of the European Central Bank (ECB), decided in July 2021, for the possible introduction of a central bank digital currency (CBDC). The aim is to develop a fast and secure electronic payment instrument that would complement the Euro for individuals and businesses in its existing form as cash and in bank accounts, and would be issued by the European System of Central Banks of the Eurozone.[1][2][3]
After concluding a two-year investigation into the design and distribution models for a digital euro, the ECB decided on 18 October 2023 to enter the preparation phase, which involves tasks such as finalizing the rulebook and selecting providers to develop the required platform and infrastructure, setting the stage for the potential issuance of a digital euro.[4]
Arguments and motivations for introducing a digital euro
editArguments and motives for the introduction of a digital euro are, according to the ECB:[1][5][6]
- Preserving central bank money's role as a monetary anchor for the payment system.[7]
- Provide free digital access to a secure legal tender in the Eurozone
- Expanding payment options through alternative central bank money alongside cash and book money in commercial bank accounts, contributing to availability and inclusion
- Building trust in digital cash through a high level of privacy protection
- Promote innovation in retail payments
- Limiting the spread of foreign digital currencies to safeguard the financial stability and monetary sovereignty of the Eurozone[8]
- Programmability would allow targeted incentives to encourage social responsibility and discourage antisocial spending
- Wealth redistribution and social aid would be greatly simplified.
In addition to these motives, the possibility of a further decline in the use of cash as a means of payment plays a role in the discussion on the digital euro.[9]
Criticism and risks of the digital euro
edit- Increased centralisation and central planning of monetary policy
- Loss of privacy
- Risk of financial censorship and loss of human rights
- Hacking and information security issues
- Higher risks of loss of central bank independence and political influence on monetary policy
- Potential for much faster transmission of bad monetary policy
- Risks to banking system of bank runs towards CBDC
- Distribution fairness issues (Cantillon effect)
- Higher political control of individual spending and saving
- Weakened Property Rights
While Christine Lagarde has publicly addressed some of these risks, critics consider her responses inadequate. Critics point to the digital Renminbi CBDC and how it has experimented with many of the right-restricting features (including geo-fencing, geo-tracking, amount limits, time limits, etc). They also point to the e-naira and venezuelan Petro and their monetary policy issues. Similarly de-banking issues and financial censorship have been on the rise in recent years, critics fear that a centrally planned, centrally controlled and managed system would have the potential for a much higher level of censorship and discrimination by authorities.
The prototype[10] developed by the ECB as part of the investigation phase includes conditional payments, this points to the potential for programmability of the digital euro and thus similar risks to individual rights as in the digital renminbi.
According to the Human Rights Foundation, CBDCs risk imposing sweeping financial surveillance, restriction of financial activity, frozen funds, seizure of funds, negative interest rates, tools for corruption, cyberattack risks and disruptions to financial stability.[11]
Preparations for the possible introduction of a digital euro
editOn 2 October 2020, the ECB published a report outlining the introduction of a digital euro from the perspective of the Eurosystem.[12][13] Since 2020, several projects have been launched in collaboration with the European Investment Bank (EIB) to test the issuance, control and transfer of central bank digital currency, as well as securities tokens and smart contracts on a blockchain.[14]
2021
editAfter preliminary planning and presenting public consultation results in early 2021,[15] the ECB launched the digital euro project in July 2021 to prepare for its potential introduction.[16] No technical barriers were identified during the preliminary planning. The research, which is scheduled to run until autumn 2023, aims to shed light on the distribution to merchants and citizens, the impact on markets and the necessary European legislation. No preliminary decision has therefore been taken on the introduction of the digital euro.[17]
2022
editIn September 2022, the ECB announces a collaboration with five companies (Amazon, CaixaBank, Worldline, EPI and Nexi) to develop potential user interfaces for the digital euro.[18]
Burkhard Balz, a member of the Bundesbank's Executive Board, sees the digital euro not least as a means of strengthening European sovereignty in payments. In his view, the digital euro could be designed to support programmable payments in a highly automated environment.[19]
The first "Progress on the investigation phase of a digital euro" report was published by the ECB in September 2022.[20]
Speaking at the conference "Towards a legislative framework enabling a digital euro for citizens and businesses" held in Brussels in early November 2022, Christine Lagarde, President of the European Central Bank, reiterated that the digital euro is not a stand-alone project limited to the area of payments. Rather, it is a cross-policy and truly European initiative that has the potential to have an impact on society as a whole.[21]
In December 2022, the ECB published the second progress report on the investigation phase.[22]
2023
editIn January 2023, the ECB invited experts in the field of payments/finance to express their interest in contributing to the development of a set of rules for the digital euro.[23]
At the end of May 2023, the ECB published the results of a market research and prototyping project. The market research had shown that there was a sufficiently large pool of European vendors capable of developing digital euro solutions. It had also shown that different types of architectural and technological design options were available to develop a technical solution for a digital euro. The prototyping project involved the integration of five user interfaces developed by different vendors for each use case (front-end prototypes) and a settlement system designed and developed by the Eurosystem (back-end prototype). Different design options were tested to determine whether they could be technically implemented and integrated into the Eurosystem's settlement system. The tests showed that it would be possible to integrate a digital euro smoothly into the existing payment landscape, while leaving room for the market to use innovative features and technologies in the dissemination of a digital euro. The results also confirmed that, in principle, a digital euro could function both online and offline using different technical concepts. The question remains whether an offline solution that meets the Eurosystem's requirements and achieves the necessary scale can be implemented in the short to medium term using existing technology.[24]
On 18 October 2023 the ECB announced that a decision had been made to move forward with preparation phase, including a public pilot and aiming for a possible launch by 2025-2026.[25]
Views on the possible introduction of a digital euro
editThe Governing Council will make a decision by the end of 2025 on whether to proceed to the next stage of planning for a digital euro.[26]
The Verbraucherzentrale Bundesverband (Public German Consumer Protection Organisation) sees the digital euro as a public good and thus an opportunity to make digital payments more consumer-oriented.[27]
The German Informatics Society (GI) sees the introduction of a digital euro and the simultaneous decline of cash as a threat to informational self-determination and privacy; there is a danger of the "Gläserner Mensch" (German metaphor for data protection, representing the complete "screening" of people and their behavior by a monitoring state, which is perceived as negative).[28]
German Banking industry
editFrom the perspective of the German Banking Industry Committee, the global trend toward central bank digital currency is unmistakable and represents both an opportunity and a challenge. The planned introduction of a digital euro is seen as an important contribution to the digitalization of the economy and society and to securing Europe's sovereignty and competitiveness. The digital money ecosystem proposed in a policy paper is intended to go beyond digital cash and consists of three elements:[29][30]
- Retail CBDC for personal use
- Wholesale CBDC for banks and savings banks
- Giral money tokens[31] for industrial use
The Association of German Banks supports the introduction of a digital euro. In a position paper published in February 2023, the private banks emphasize the evolution of cash, their role in its issuance, its openness to innovation, and their desire to minimize the risks of its introduction. Among the risks, the private banks specifically mention those affecting their business (disintermediation, diminishing returns, weakening of their customer relationship) and that a weakening of their investment capabilities could lead to the failure of the digital euro.[32]
The Bundesverband der Deutschen Volksbanken und Raiffeisenbanken (BdV) welcomes the ECB's plans for a digital euro, but criticizes that the needs of the economy for a future digital payment method have not yet been sufficiently taken into account.[33][34][35]
German Industrial sector
editIn a position paper published at the end of September 2022, the Bundesverband der Deutschen Industrie (BDI, Federation of German Industries) warns that the needs of the industry must be taken into account when introducing a digital euro. The programmability of payments is a key demand.[36] [37]
Eurogroup
editFor Paschal Donohoe, president of the Eurogroup, a body of finance ministers from euro member states, the digital euro project is about maintaining the link between citizens and central bank money: as central bank money, the digital euro would be convertible one-to-one into euro banknotes.[38]
Unlike the industry, the Eurogroup does not want the digital euro to be equipped with additional functions.[39][40]
European Commission
editThe European Commission has submitted a legislative proposal for the introduction of a digital euro that should be made available as a legal tender not only to banks, but above all to the general public.[41] Presented on 28 June 2023, this proposal outlines the fundamental requirements for its possible implementation.[42][43][44] However, the final decision lies with EU member states and the European Parliament, who are currently —12 November 2024— negotiating this proposal.[45] If the legislation is approved, the European Central Bank (ECB) will further develop the technical and operational aspects, aiming to create a secure and reliable digital euro, available alongside cash and traditional bank payment accounts.
Additionally, the proposal aims to protect user privacy, similar to cash, without extra oversight of individual transactions by the governments.[46] For security purposes, there are considerations for limits on the amount individuals can hold in digital euros. All of this forms part of a preparatory phase that may take several years, with an expected implementation date from 2028 if the legislation is approved.
Further reading
edit- Nicola Bilotta, Erwin Voloder: Going Global: The Political Ambition and Economic Reality of the (Digital) Euro, in: Nicola Bilotta, Fabrizio Botti (Hrsg.): Digitalization and Geopolitics: Catalytic Forces in the (Future) International Monetary System, Edizioni Nuova Cultura 2023, ISBN 978-8-83365-572-7.
- Annelieke A. M. Mooij: A digital euro for everyone. Can the European System of Central Banks introduce general purpose CBDC as part of its economic mandate? In: Journal of Banking Regulation. 2022. doi:10.1057/s41261-021-00186-w
- Annelieke A. M. Mooij: European Central Bank Digital Currency: the digital euro – What design of the digital euro is possible within the European Central Bank's legal framework? BRIDGE Network – Working Paper 14, May 2021.
- Peter Bofinger: Grundzüge der Volkswirtschaftslehre. 5. edition. Pearson, Munich 2019, ISBN 978-3-86894-368-9, p. 561–578, Chapter 28: Digitalisierung des Geldes und die Zukunft der Geldpolitik.
- Isabella Lindner: The Euro on its way to internationalization – Potential Geopolitical Impacts. In: Klemens H. Fischer (Publisher): European Security Put to the Test. Perspectives and Challenges for the Next Decade. (= AIES Beiträge zur Europa- und Sicherheitspolitik. Volume 6). Nomos Verlag, 2021, ISBN 978-3-8487-8558-2.
- Thomas Mayer: A Digital Euro to Compete with Libra. In: The Economists' Voice. Volume 16, Issue 1, 2019.
- Philipp Sandner, Jonas Groß: Der digitale Euro aus geopolitischer Perspektive. In: Johannes Beermann (Hrsg.): 20 Jahre Euro. Zur Zukunft unseres Geldes. Siedler, Munich 2022, ISBN 978-3-8275-0165-3, P. 409–436.
References
edit- ^ a b "Ein digitaler Euro". ecb.europa.eu (in German). Retrieved 10 July 2021.
- ^ "Digitales Geld: Wie der digitale Euro funktioniert". br.de (in German). Retrieved 10 July 2021.
- ^ "Zur Möglichkeit der Einführung eines digitalen Euro" (PDF). Deutscher Bundestag, Fachbereich Europa. 8 October 2018. Retrieved 16 February 2022.
- ^ Bank, European Central (18 October 2023). "Eurosystem proceeds to next phase of digital euro project". EUR-Lex. Retrieved 12 November 2024.
- ^ Panetta, Fabio (18 November 2021). "Ein digitaler Euro für den Zahlungsverkehr von morgen". Europäische Zentralbank | Eurosystem. Retrieved 4 March 2022.
- ^ "Argumente für einen digitalen Euro: Hauptziele und Gestaltungsaspekte" (PDF). Europäische Zentralbank - Eurosystem. July 2022. Retrieved 1 October 2022.
- ^ "Der digitale Euro und die Bedeutung von Zentralbankgeld". Europäische Zentralbank | Eurosystem. 5 October 2022. Retrieved 11 March 2023.
- ^ "Wozu ein digitaler Euro?". forbes.at. 4 July 2022. Retrieved 14 March 2023.
- ^ "Wie stehen private Haushalte in Deutschland zum digitalen Euro? Erste Ergebnisse aus Umfragen und Interviews" (PDF). Deutsche Bundesbank, Monatsbericht Oktober 2021. Retrieved 7 March 2022.
- ^ "Digital Euro - Prototype summary" (PDF). ECB.
- ^ https://cbdctracker.hrf.org/cbdc-101
- ^ "Bericht über einen digitalen Euro". Europäische Zentralbank | Eurosystem. 2020. Retrieved 16 February 2022.
- ^ Fabio Panetta (20 October 2020). "We must be prepared to issue a digital euro". The ECB Blog. Retrieved 4 March 2022.
- ^ "Experiment on the use of Central Bank Digital Currency" (PDF). Banque de France. 29 April 2021. Retrieved 16 February 2022.
- ^ "Bericht des Eurosystems über das öffentliche Konsultationsverfahren zu einem digitalen Euro" (PDF). Europäische Zentralbank | Eurosystem. April 2021. Retrieved 16 February 2022.
- ^ "Das Eurosystem startet Projekt zum digitalen Euro". Deutsche Bundesbank | Eurosystem. 15 July 2021. Retrieved 16 February 2022.
- ^ "Das Eurosystem startet Projekt zum digitalen Euro". PRESSEMITTEILUNG. Europäische Zentralbank. 14 July 2021. Retrieved 3 August 2021.
- ^ "ECB selects external companies for joint prototyping of user interfaces for a digital euro". Europäische Zentralbank - Eurosystem. 16 September 2022. Retrieved 1 October 2022.
- ^ "Bundesbank: Digital-Euro würde Souveränität Europas im Zahlungsverkehr stärken". Handelsblatt. 19 July 2022. Retrieved 3 August 2022.
- ^ "Progress on the investigation phase of a digital euro" (PDF). ECB | Eurosystem. September 2022. Retrieved 7 January 2023.
- ^ Christine Lagarde (8 November 2022). "Digital euro – a common European project". BIS - Bank for International Settlements. Retrieved 10 November 2022.
- ^ "ECB publishes second progress report on the digital euro investigation phase". ECB | Eurosystem. 21 December 2022. Retrieved 7 January 2023.
- ^ "Call for expressions of interest in participation in the digital euro scheme Rulebook Development Group". European Central Bank | Eurosystem. 3 January 2023. Retrieved 7 January 2023.
- ^ "Market research and prototyping exercise confirm feasibility of technical solutions and user interfaces for a digital euro". Europäische Zentralbank - Eurosystem. 26 May 2023. Retrieved 28 May 2023.
- ^ "Eurosystem proceeds to next phase of digital euro project". ECB.
- ^ Bank, European Central (24 June 2024). Progress on the preparation phase of a digital euro - First progress report (Report). European Central Bank. doi:10.2866/10580.
- ^ "Der digitale Euro. Für Privatsphäre, Unabhängigkeit und Teilhabe im digitalen Zahlungsverkehr" (PDF). Verbraucherzentrale Bundesverband. 30 July 2021. Retrieved 7 March 2022.
- ^ "Digitale Währungen schaffen gläserne Menschen". Gesellschaft für Informatik. 22 November 2022. Retrieved 7 January 2023.
- ^ "Deutsche Kreditwirtschaft legt Grundlagenpapier für "digitalen Euro" vor – EZB muss über digitales Bargeld hinausdenken". Die Deutsche Kreditwirtschaft. 5 July 2021. Retrieved 4 March 2022.
- ^ "Europa braucht neues Geld – Das Ökosystem aus CBDC, Giralgeldtoken und Triggerlösung" (PDF). Die Deutsche Kreditwirtschaft. 5 July 2021. Retrieved 4 March 2022.
- ^ "Digitaler Euro und Giralgeldtoken: Europas Geld von morgen". Bundesverband deutscher Banken. 14 July 2021. Retrieved 4 March 2022.
- ^ Tobias Tenner, Albrecht Wallraf, Marek Jessen (6 February 2023). "Positionspapier "Digitaler Euro - als nächster evolutionärer Schritt des Geldes"". Bundesverband deutscher Banken. Retrieved 13 February 2023.
{{cite web}}
: CS1 maint: multiple names: authors list (link) - ^ "BVR für Schaffung eines innovativen Ökosystems digitaler Geldformen / Euro-Kryptogeld für Wirtschaft sollte von Banken angeboten werden". Bundesverband der Deutschen Volksbanken und Raiffeisenbanken. 28 February 2022. Retrieved 4 March 2022.
- ^ Andreas Bley (23 February 2022). "Wirtschaft braucht anderen digitalen Euro als Bürgerinnen und Bürger" (PDF). BVR Research. Retrieved 4 March 2022.
- ^ "BVR-Position - Die Digitalisierung des Euro: Chancen nutzen, Risiken begrenzen. Zielbild für ein europäisches Geldsystem der Zukunft" (PDF). Bundesverband der Deutschen Volksbanken und Raiffeisenbanken (BVR). February 2023. Retrieved 11 March 2023.
- ^ "Zunehmender Bedarf an programmierbaren Zahlungen". Deutsche Bundesbank und BMF. 21 December 2020. Retrieved 27 February 2023.
- ^ "Digitaler Euro. Industriebedarfe bei Etablierung nicht vernachlässigen". Bundesverband der Deutschen Industrie e. V. 28 September 2022. Retrieved 1 October 2022.
- ^ Paschal Donohue (14 March 2023). "The possibility of the digital euro. What makes this project any different, or better, than other innovative digital solutions already available? The answer lies in 'central bank money'". politico.eu. Retrieved 14 March 2023.
- ^ Stefan Krempl (17 January 2023). "EU-Finanzminister: Digitaler Euro soll nicht programmierbar sein". heise.de. Retrieved 27 February 2023.
- ^ Euro-Gruppe Pressemitteilung (16 January 2023). "Eurogroup statement on the digital euro project, 16th January 2023". Europäischer Rat, Rat der Europäischen Union. Retrieved 27 February 2023.
- ^ Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the establishment of the digital euro
- ^ "Der digitale Euro soll gesetzliches Zahlungsmittel werden – das sind die Pläne der EU". it-finanzmagazin.de (in German). 16 June 2023. Retrieved 12 November 2024.
- ^ Allenbach-Ammann, János (15 June 2023). "EU-Kommission will kostenlosen digitalen Euro für alle". euractiv.de (in German). Retrieved 12 November 2024.
- ^ Diesteldorf, Jan (15 June 2023). "EU-Pläne: Der digitale Euro kommt - das steckt dahinter" (in German). Süddeutsche Zeitung. Retrieved 12 November 2024.
- ^ Procedure 2023/0212/COD
- ^ Krempl, Stefan (15 June 2023). "Digitaler Euro: Pseudonymisierung soll den gläsernen Kunden verhindern". heise.de (in German). Retrieved 12 November 2024.
External links
edit- Official website by the ECB
- Human Rights Foundation CBDC tracker
- Report on a digital euro, European Central Bank | Eurosystem October 2020
- Bericht des Eurosystems über das öffentliche Konsultationsverfahren zu einem digitalen Euro, Europäische Zentralbank | Eurosystem April 2021
- Friedrich Thießen: Digitaler Euro. Funktionsweise und kritische Würdigung, ZBW – Leibniz-Informationszentrum Wirtschaft 2021
- Kommt der digitale Euro?, Bundesverband deutscher Banken, 18. August 2021
- Europa braucht neues Geld – Das Ökosystem aus CBDC, Giralgeldtoken und Triggerlösung, Die deutsche Kreditwirtschaft, 5. Juli 2021
- Heike Mai: Der digitale Euro. Politische Ambitionen treffen auf ökonomische Realitäten, Deutsche Bank Research, 2. Juli 2021
- Auf einen Blick: Der digitale Euro, VÖB-Factsheet, 02/201
- Der digitale, programmierbare Euro. Stellungnahme des FinTechRat beim Bundesministerium der Finanzen 01/2020 at the Wayback Machine (archived 2022-02-16)
- Vormarsch des digitalen Euro?, Foresight und Technikfolgenabschätzung: Monitoring von Zukunftsthemen für das Österreichische Parlament, November 2021 Archived 2022-07-10 at the Wayback Machine
- Philipp Sandner, Jonas Groß, Lena Grale: Der digitale Euro. Einfluss auf die deutsche Wirtschaft, Konrad-Adenauer-Stiftung e.V. 2021
- Digitaler Euro auf der Blockchain. Infopapier, bitkom 2020
- Markus Brunnermeier, Jean-Pierre Landau: The digital euro: policy implications and perspectives, Policy Department for Economic, Scientific and Quality of Life Policies Directorate-General for Internal Policies, January 2022
- CBDC Manifesto, Digital Euro Association/CBDC ThinkTank, 2022-10-11