Europe’s digital currency project has made some progress recently, with the Eurozone’s central bank moving to its next stage. Critics point, however, to the continuing lack of clarity around the design and purpose of the digital euro after a decade-long delay, if cryptocurrency is taken as a benchmark.
Digital Euro to ‘Feel Like a Prepaid Card of Sorts’
A week after the European Central Bank (ECB) decided to proceed with its plan to create a digital version of the euro, experts have voiced concerns about its unclear future. On July 14, the Governing Council of the ECB approved the launch of the project’s next, “investigation phase.” The stage is going to last 24 months during which key issues regarding design and distribution should be addressed.
But according to Hugo Coelho, former chief of staff to Eurogroup President Mario Centeno and partner at Forefront, “the outcome is not clear yet and might not be for a long time.” The Eurogroup is the informal but politically important meeting of finance ministers of the 19 EU member states that have adopted the common currency. Speaking to Euractiv, Coelho elaborated:
For the moment the digital euro remains flagrantly ill-defined … it might well be the case that the first version of the digital euro will feel like a prepaid card of sorts and make little difference to our day-to-day lives, but it could change gradually.
What’s known so far is that the digital euro is supposed to represent euro notes and coins in electronic form. Unlike present-day bank money, however, it will be stored directly in accounts issued by the ECB, and not at commercial banks. The central bank intends to use it as an additional payment instrument but has also stated that replacing traditional cash is not the goal.
ECB Losing Game to Cryptocurrencies and Stablecoins
By default, the digital euro should be safer than the private sector banking system, Euractiv remarks, as a commercial bank could become insolvent, a remote but nevertheless real possibility. “In the collective mind, the ECB is the ultimate guarantee,” Netinvestissement co-founder Karl Toussaint du Wast told the publication. What’s more, using the CBDC is expected to be free of charge, with payments made through a card issued by the ECB or a smartphone application.
Commenting on the start of the investigation phase, ECB President Christine Lagarde stated last week that the “encouraging results” from the analysis and experiments conducted over the last nine months have led the central bank to “decide to move up a gear and start the digital euro project.” Toussaint du Wast described the move as “desperate and hopeless,” emphasizing:
The ECB has lost the game … the innovation and growth power of projects developed on blockchain, including cryptos, having been 10 years ahead.
One of the main motives behind the digital euro project is the desire of the European Central Bank to keep a grip on currency sovereignty, Euractiv notes, and the ECB isn’t going to admit defeat. In this situation, stablecoins backed by fiat currencies such as the U.S. dollar and the euro are the “first enemy” to the digital euro, according to Toussaint du Wast.
By all indications, the euro’s electronic incarnation is likely to appear after Facebook’s “diem” coin, for example. Earlier this year, the ECB requested to be granted veto powers over the launch of such stablecoins in the Eurozone, citing the need to preserve control over inflation and maintain the safety of payments in the single currency area.
Do you think the digital euro will be able to successfully compete with stablecoins and cryptocurrencies? Share your thoughts in the comments section below.