Tag: European Parliament

The European Central Bank, in July 2021 launched a digital euro project. The investigation phase that will start this month and last for about two years will aim to address key issues regarding design and distribution.

Central banks around the world, including the Reserve Bank of India, have been contemplating the launch of their very own CBDC. A total of 81 countries, representing 90% of global GDP, are exploring CBDC as of May 2021, compared with 35 countries in May 2020, according to Atlantic Council, a US think tank.

“Some of the other countries, like the UK and Sweden, also have their own projects, which are more or less in a similar stage in terms of progress, following their own path in terms of policy and design,” Aleksi Grym, head of digitalisation at Bank of Finland said.

The currency aims to reach a population of 340 million, if adopted by all of the nations part of the Eurozone.

What is Digital Euro?

The Digital Euro would be a form of central bank money issued by the European Central Bank, and will remain its liability at all times.

According to the ECB, the Digital Euro would still be a euro, like banknotes but digital. It would be an electronic form of money issued by the Eurosystem (the ECB and national central banks) and accessible to all citizens and firms. It will not be a parallel currency.

“The broad consensus is that CBDC would complement rather than substitute any existing part of the financial industry,” said Grym.

The operational and legislative framework to introduce the CBDC will be discussed with the European Parliament and other European institutions, and the access to the digital euro will be intermediated by the private sector.

What are the reasons to issue a digital Euro?

The Digital Euro will be a viable option for the Eurosystem, in order to support digitisation in payments. It could act as a new monetary policy transmission channel and mitigate risks to the normal provision of payment services, the ECB said.

The bank further mentioned that it could serve as a response to a significant decline in the role of cash as a means of payment.

Furthermore, the bank said that it could reduce the significant potential for foreign CBDCs or private digital payments to become widely used in the euro area while fostering the international role of the euro.

What will it look like?

The ECB has not yet specified a particular design of a Digital Euro. It wants to fulfil a number of principles and requirements including accessibility, robustness, safety, efficiency and privacy.

Although, based on the possible features of a Digital Euro, two broad types have been identified that would satisfy the desired characteristics – offline and online.

“The design of the CBDC has to be compatible with the objective of monetary and financial stability,” Grym said.

“For the Eurozone, we primarily look at retail CBDC, and the reason for that is that we already have quite a sort of advanced infrastructure for the wholesale cases,” he added.

When will the Eurozone have its CBDC?

The CBDC project was launched in July this year. However, the ECB has said that the end of this project will not necessarily result in the issuance of this currency, and that the central bank is merely preparing for the possibility of its issuance in the future.

“From the European perspective, we kind of envision what the world will look like not today but in 10, 20 or 30 years. The idea is that we’re looking at moving towards a much more digitized world, which is moving faster.That’s where cbdc will be designed for not necessarily the work we see today,” Grym said.

The investigation phase will examine the advantages and weaknesses of specific types of digital euro and how they would meet the needs and expectations of European citizens, businesses and financial intermediaries.