The European Central Bank (ECB) may begin developing and testing the digital euro in 2023, said ECB Executive Board member Fabio Panetta, speaking at the National College of Ireland. He also said that it can take up to three years.
Panetta noted that the introduction of the digital euro is aimed at strengthening the monetary sovereignty of the European Union and ensuring a reliable and stable monetary base for the creation of new payment and financial services in the era of universal digitalization.
Cryptocurrencies are confidently entering our lives. The words Bitcoin, Ethereum, Tether, and "crypto exchanges" cease to be something of a secret knowledge for the chosen and become commonplace for those who want to learn to competently manage their finances.
Not much time has passed since the advent of crypto — and the central banks of different countries have begun to declare a desire to create their digital currencies. The digital yuan already exists, the dollar has several analogs at once, for example, Tether — a stablecoin tied to the dollar exchange rate, and work is underway on the digital euro, which may soon bear fruit. So, what about this euro?
The Answer to the Digital World
People are increasingly paying in digital format, not in cash. Cash cannot be used in e-commerce, and many physical stores also prefer cashless payments.
The answer to the growing preference of citizens and firms for digital payments can just be the digital euro.
- In the European Central Bank (ECB), according to Evelyn Witlox, head of the digital euro program, the developers see three main options for using a single digital European currency:
- Peer-to-peer payments enable people to make personal transfers to each other.
- Payments between buyer and seller in real and virtual stores.
- Payments in the interests of the state or between state organizations.
Simply put, digital money may well serve as its analog "ancestors."
Do not forget that the euro at first was also a little "virtual," because it was introduced on January 1, 1999, and used for cashless settlements. Euro banknotes and coins were presented only in January 2002, that is, more than 20 years ago.
However, the EU is quite skeptical of blockchain and does not understand how technology can be used at the state level. But the global trend around digital assets is forcing the European Central Bank to keep up with galloping digitalization.
However, the final decision to launch the digital euro into the masses has not yet been made. There are tests, the results of which will determine the fate of the European cryptocurrency.
Amazon and Digital Euro
The European Central Bank intends to cooperate with five corporations to test the single digital currency (CBT) within the European Union.
The tech giant Amazon will work on a digital euro payment system for e-commerce.
CaixaBank and Worldline will be responsible for prototyping P2P payments (that is, personal transfers to each other), and EPI and Nexi will work on retail payments at points of sale for goods and services.
These companies selected 54 applicants from the list who also had an interest in developing a digital euro.
The results of the testing, which is now being carried out, will be published in 2023.
But the European Commission is inclined to think that their digital currency will fully work no earlier than 2026. And even then, only if the tests prove that the blockchain is safe and has sufficient throughput.
What Is MiCA and What Role Does It Play in This Story?
Markets in Crypto-Assets or abbreviated MiCA is a European bill that should regulate the crypto industry. It appeared back in 2020. It took two years to finalize it.
MiCA will protect consumers from some risks associated with investing in crypto assets and help them avoid fraudulent schemes.
For example, the recent depreciation of stablecoin UST showed the risks borne by stablecoin holders due to lack of regulation.
This will bring more clarity to the European Union, as some member states already have national legislation on crypto assets, but so far there has not been a specific regulatory framework at the EU level.
Without going deep into detail, the document is intended to become the main official use of cryptocurrencies.
The downside is that with the help of MiCA, the EU authorities want to oblige all crypto exchanges to provide personal customer data, including transaction information, which, in principle, annihilates the original meaning of creating crypto — anonymity and deregulation.
Already on September 1, members of the German Blockchain Association discussed the introduction of rules on cryptocurrency markets (MiCA) — the final text of regulations were published in October 2023.
EU legislators agree with all the provisions of the document. The agreement was reached in June of last year. MiCA, by the way, will allow Europe to become the first region in the world where clear rules will be established regarding digital assets.
The head of the cryptocurrency exchange Binance Changpeng Zhao suggests that the MiCA will be adopted worldwide as a standard of regulatory policy regarding cryptocurrencies. Although such a development, according to Zhao, may lead to a ban on stablecoins in the EU.
Regulation and Emission of Digital Euro
The average resident will not notice the difference, because for him it will be just numbers on the map or in an electronic wallet. As planned, the digital euro can be exchanged for a cash or non-cash euro at a rate of 1:1.
But banks will have to connect to the system of the European Central Bank, which (with all likelihood) will begin to issue digital currency. The money supply will become easier to control, because you will not be able to hide the digital euro under the mattress, and the transition to other digital assets or fiat currencies can be easily limited or prohibited.
In addition, if the conditional Bitcoin can be mined, the ECB will have a monopoly in this regard.
If the digital euro is launched, its issue will be limited to €1.5 trillion. This was stated by Fabio Panetta, a member of the board of the European Central Bank (ECB).
According to him, the EU authorities fear that consumers may transfer all their money to digital format, actually moving them to the Central Bank. This will deprive commercial banks of the funds necessary for lending to individuals and enterprises.
The limited issue of the digital euro will help avoid negative consequences for the financial system and monetary policy of the EU.
The digital euro system will interact with the private banking system, which means that people will be able to transfer their money from their accounts in commercial banks to their digital accounts in euros and vice versa.
At the same time, the "digital money" system will save the government from the need to save banks from bankruptcy, because the money stored in the central bank will be risk-free.
So far, the EU says that their digital asset should be an addition, not a replacement for the physical currency, but everything can change. Therefore, the main motivation is control. And not just control, but total control of the income and expenses of citizens.
With a digital euro, money laundering will become simply impossible, because all transactions are recorded, tied to a specific person, and publicly available.
But the issue of digital currency will affect the cost of the euro. The ECB does not publish information about the costs of its banknotes, but, according to the press service of the regulator for 2015, the cost of issuing euro notes is from 6 to 10 euro cents.
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