We all know several central banks are investigating the use of digital currencies. One of them is the European Central Bank. Its aim is to provide a safer and more efficient alternative to cash and cryptocurrencies. In this post, I will answer what is the digital euro and how it would work.
What is the Digital Euro
A digital euro would be the euro in a digital form. It would be produced and guaranteed by the European Central Bank. Also, it would be legal tender.
Reasons to Introduce the Digital Euro
-Due to the COVID-19 pandemic, electronic transactions have seen a significant surge as the general public tries to avoid paper money over fears they might spread the virus.
-The Europeans do not want to fall behind other digital currency producers such as Bitcoin and Facebook’s project Libra now called Diem.
-The digital euro could be an important tool in case of a natural disaster in case the “traditional payment services” collapse.
-Fintech institutions and cryptocurrencies could undermine the eurozone banks and the euro itself. Also, citizen’s finances are vulnerable to foreign powers and marketing companies, collecting data on their spending habits.
-The digital euro will assist the euro to become a key international currency
Digital Euro Public Consultation
There has been a public consultation regarding the digital euro’s introduction. More than 8,000 (8,221) participants actually responded with their own feedback. The ECB has made the results available to the public.
======> Press here to see the digital euro public consultation results
Furthermore, there has also been consultation between the European Commission and the European Central Bank to consider future issues that could arise with the digital euro introduction.
The European Parliament and the European Council are already aware of the public consultation findings along with the European Commission and the ECB findings. Both European governing bodies will have to vote for or against it.
It is more than certain, that the ECB policymakers will go ahead and give the digital euro the green light. That could take place in the summer. It is expected for the whole project to eventuate within four years after its approval.
Digital Euro Pros
-All citizens including the homeless or those without a bank account will have access to a free or a low-cost bank account.
-The digital euro will ensure cash will retain its utility as a public payment system accessible to everyone.
-The digital euro will provide a secure integrated mechanism managed by the ECB
-Governments will maintain their seignorage income no matter what the future of physical cash will be.
-You won’t have to rely on banks FinTech companies and other intermediaries as technology will allow all payments and money transfers to be made in real-time directly from payment to the payee.
-The digital euro will increase competition between banks whose aim would be to attract cash.
-The digital euro could transform the existing problematic monetary policy and facilitate the implementation of helicopter money.
-The introduction of the digital euro could limit the ability of banks to generate money through credit and as a result, it reduces the possibility of a credit-fueled crisis.
-People’s finances will not be vulnerable to foreign powers and private companies collecting data on their spending habits.
-The digital euro will be another tool against crime, money laundering, and tax evasion.
Digital Euro Cons
-The digital euro introduction might lead to deposit runs and financial turbulence.
-Civil liberty activists worry the digital euro could be used by governments to spy on how and where their citizens spend their money.
-There could be a transfer of funds from the Eurozone banks to the ECB as people rush to open digital accounts at the ECB.
How Would the Digital Euro Work
The digital euro will be a useful addition to your wallet. You could use it as an alternative to plastic cash. You could pay your bills, do your shopping or even borrow from your friends and pay them back anytime, anywhere.
All this could be done through a wallet-like application stored in your smartphone. Digital euros will be guaranteed by the ECB and one digital euro will always be worth the same as a one euro coin.
In case you lose your smartphone your digital euros won’t be lost because the ECB will be keeping a record.
The crypto-euro will run transactions at a low cost. The ECB will be recording each transaction using blockchain technology.
Digital Euro Compared to Bitcoin and Other Cryptocurrencies
-Bitcoin is subject to price manipulation along with other cryptocurrencies while the digital euro will not be manipulated in any way.
-The digital euro will be a stable digital currency while Bitcoin never was and I do not think it will ever be.
-The digital euro would be a true 100% digital currency while cryptocurrencies are not real currencies.
-Fast transactions and payments with the digital euro, this is not the case with Bitcoin and other cryptocurrencies.
-The ECB will be backing and guaranteeing the digital euro contrary to Bitcoin and other cryptos where nobody guarantees or takes responsibility for anything.
-Bitcoin and other cryptos have been subject to theft and fraud. Theft and fraud would be difficult with the digital euro.
My Own Thoughts
The Money You Do Not Own
Right now people only have two options. To use private banks, or to hide their money under the mattress or some safe place at home. To make things worse, most people are unaware that the money in their bank accounts exists only as a number in a computer screen, and is by law the property of the bank. The bank owes that money to people but the money does not belong to them.
Why Governments Love to Print Money
Physical money, (coins and paper money) is created by central banks and is not tied to a particular obligation from a bank to individuals. In addition, when a central bank prints money it also creates an income for the state. That income is known as seigniorage. This is another reason why governments love to print money without taking a good look at the negative impact money printing has on the economy.
Cash is the Best Payment System
Cash is the only payment system that is accessible to everyone with or without a bank account and it is in every respect free of charge. The truth is that cash offers an important public utility service.
People do not use cash as much as they used to. The reality is, that there is a surge in payments made by credit cards, mobile applications, and cryptocurrencies. Digital technology enables us to make user-friendly payments.
That surge in financial technology poses a great threat to cash. Cash is becoming an endangered species and this is something we should avoid.
A Cashless Society Will Be a Mistake
Think this, if cash disappears then a few very powerful private companies will be in total control of the money system. These companies will monitor our transactions something I do not like.
Something else I do not like is that in a world without cash people will be trapped in our current banking system without having the option to get out. We need to use technology to redesign and improve our monetary system in a way that works for the public interest.
If the monetary system is to work for the public interest then surely it has to include money. There is nothing wrong with money, in fact, money is a public asset.
Final Words
The move from central banks (ECB, China, Sweden, and so on) to introduce their own digital currencies is absolutely necessary. It will put an order in the cryptocurrency industry where there is a high volume of theft, scams, and other illegal activities. It will force them to improve their security and all that will benefit the consumers, you, and me.
Additionally, the introduction of the digital euro will shake the cryptocurrency world. Imagine a stable digital currency guaranteed by the ECB performing low-cost, secure, and fast transactions.
The digital euro will be exciting news, as it will actually benefit the economy and the consumers and it will also protect cash.
What do you think about the digital euro, would it work or not? Could it be better than Bitcoin and other cryptocurrencies or not? Feel free to leave a comment I always answer back.
I hope this article covered your question about what is the digital euro. If you have any queries do not hesitate to leave me a comment and I will get back to you.
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I appreciate this information to help people understand what the digital euro is. You make some interesting points about introducing this, but I would imagine the financial turbulence risk is understated. Also, it would certainly pave the way for more government intrusion into daily spending habits, and I do not think that will be an easy sell for most people.
The digital euro will be the euro we all know in a digital form. Both will be tied together as users will be able to switch from one to another. Therefore, the digital euros price fluctuations will be the same as the euro we all know which is minimal. When it comes to privacy Europe has the strictest laws in the world concerning privacy. In addition, large corporations have sold user details to other corporations and have also allowed secret services FBI, CIA, and so on) to get access to their records.
Thanks for the comment.
I did hear a lot about bitcoins before, but honestly never about the digital Euro, so it is always good to read and learn about other ways of investing money. Reading your article, I can even see that the digital Euro will always be a stable currency, while the bitcoin isn’t, this is a very interesting concept and I would like to thank you for opening my eyes to this!
The digital euro will be stable because it will be tied to the euro we all know. In fact, you will be able to switch from digital euros to ordinary euros back and forth and you will still have the same money in your account as both will have the same value.
Thank you for the comment.
This is a very informative article on the digital euro. While I’m not sure about the security and agree with people who express privacy concerns, I think this is the right way for money systems to go.
I agree that cash is currently in the safest form of money, yet places are becoming less willing to accept cash these days. I hope other countries will consider implementing something similar to the digital euro.
Yes, the security will always be a concern, however, the ECB will be backing it and will guarantee the digital euro in case of fraud. Cash is the best form of money because it is free, and because it ensures your privacy.
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Hey, I definitely agree with you on the dangers of a cashless society, it’s what China is turning into right now. They don’t even pay cash to small food stands there anymore. I definitely want to keep up with cryptocurrency and digital currency in general. I’m very conservative in terms of making my own investment in them but it’s always good to stay up to date and educated.
Unfortunately, most people do not realize the dangers of a cashless society. The banks and large financial institutions will be in control of our payment system and they will be able to spy on our spending habits. In addition, governments could spy on how and where we spend our money as well. There will be less freedom for us.
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These are exciting news. I know that Bitcoin has been growing continually since its birth more than ten years ago. Cryptos have proven to be valuable and if we could have the best of both worlds (cryptos and local currencies), it would be awesome. I am looking forward to reading more about this digital Euro. Thank you very much!
Bitcoins and other cryptos are getting popular. The addition of the digital euro along with cash and fin-tech companies such as Pay Pal will add pluralism to our payment system. These are exciting times.
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This is a very interesting post. I have not heard of this before.
I really can’t understand how it would be different from what we already have. We have our money paid electronically into our accounts and use debit cards or things like Google pay to transfer it from our account to the retailer. So is that not the same thing?
With Covid, the number of people using cash has diminished greatly. So it will probably get easier to make the switch.
While there is always the argument that old people need traditional methods, that argument gets weaker every year, as our older people will soon all have had an electronic background, so they will be well used to using electronic business means.
The truth of the matter is that when a payment is made in cash, or electronically, or digitally, the end result will be exactly the same. You will have the same amount deducted from your bank account or your crypto wallet or out of your pocket. The difference between all those is convenience or preference.
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