Digital euro: Forget what you knew about trading. Everything changes in our life. Coins and banknotes are about to be abolished once and for all. In time the final decisions. The use of cash at tax offices has already been phased out. All developments on xristika.gr.
Within a year, eurozone finance ministers are expected to decide if and when the “digital euro” project that aspires to change the monetary landscape and the daily lives of millions of citizens will come to fruition.
The issue was discussed for the second time at the level of eurozone finance ministers on Friday.
Chairman of the Board, Irish Finance Minister Pascal Donahue highlighted that the joint work undertaken by the European Central Bank in conjunction with the European Commission, to come up with a comprehensive eurozone cryptocurrency model based on euro, it should be completed within 2 to 3 months.
As soon as there is a reliable “model” for the digital euro, then we will decide “if and when” its implementation will continue, said the president of the Council of eurozone finance ministers.
However, he did not hide his reservations about the whole project, noting that it is a very complex and difficult process.
By way of indication, he indicated that modifications had to be made to the Treaty on the issue and circulation of the euro and that political commitments had to be made by the Member States for the adoption and integration of the euro. digital.
He also noted the many difficult technical issues that will need to be resolved, such as data and transaction security, the user-friendliness and reliability of the management system, its compatibility with transactions outside the euro area, and ensuring that there is no outlet for money laundering. illegal transactions like other cryptocurrencies.
The digitization of the euro as a “stable cryptocurrency”, i.e. as a digital currency which will continue to be governed in its issuance and management by the ECB and not like the well-known cryptocurrencies (bitcoin, binance, etc.) solely by the rule of supply and demand, has a dual purpose.
Make a digital leap that will cross all 19 eurozone Member States and their trading partners and will significantly reduce the cost of major commercial transactions, but also the daily transactions of European citizens.
Despite its obvious advantages, its implementation, if finally decided, will not be easy or quick, since for about 16 months, despite everyone’s good intentions, no one has yet been able to explain what will be and how the digital euro will be and work.
The whole effort started since December 2019, when the European Council and the Commission issued a joint statement on “stable cryptocurrencies”. The statement highlights the opportunities that stablecoins offer for fast and cheap payments, but also the challenges and risks that they entail.
During the first discussion held by the Eurogroup on the subject on November 3, 2020, no decision was taken because there was only the idea of the digital euro. Indeed, the work undertaken by the ECB and the European Commission to experiment and propose a form of crypto-currency was not finished.
On March 22, a decision of the European Council welcomed the creation of the digital euro, but pointed out the issues and the risks and in turn asked the ECB for a final form of the project. At the same time, it also asked the European Commission for proposals for its institutionalization and operation.
Digital euro: the pandemic is accelerating developments
The prolongation of the pandemic and the ever-increasing use of electronic and contactless payments, as well as the rapid development of cryptocurrencies, have been the catalyst for the acceleration of ECB decisions and plans for the circulation of digital euro.
Working groups have already started to put together the technical and legal details, as well as the plan for pilot tests in European cities, before the official and massive release.
Although final decisions will be taken by the ECB in early summer, sources involved in the planning believe that the mere fact that the practical details have started to be worked out is a strong indication that the decision is likely to be positive for its deployment. .
Greece also participates in all planning, through the Bank of Greece, commercial banks and DIAS interbank systems and other bodies. Based on the data so far, the digital euro will not be a cryptocurrency, nor an electronic payment method, as are, for example, Apple Pay, Google Pay, PayPal or credit and debit cards. debit. It will also not replace cash.
The difference with current digital payment methods consists of the following:
1. The digital euro will be a new currency, which will be issued by the ECB, it will be a requirement of the Eurosystem and not of commercial banks.
2. It will have its own currency and its own interest rates. In other words, a limit will be decided on the amount (value) that will be available in the markets and will have interest rates that prevent the conversion of today’s euros into digital euros. In addition, the amount and interest rates will be fixed in such a way that the digital euro is not used for investment and profit.
3. Digital euro payments will benefit from the immediacy and anonymity that cash currently enjoys. It will provide the highest security and protection of personal data, except in cases where criminal acts are under investigation, such as money laundering and terrorist financing.
4. Each citizen will have an upper limit for the digital euro, which will be determined. For example, it can be 3,000 euros. The duration will be determined by the data indicating how long it takes an average citizen to have the amount corresponding to his cash needs. Once the duration and the amount are fixed, the numerical limit in euros will be higher. Alternatively, it is envisaged not to set a limit, but to impose an interest rate to discourage its use beyond a certain amount.
5. The digital euro will not replace cash as a means of payment.
6. Commercial banks will participate in the distribution of the digital euro. They are not threatened by the flight of deposits, since quantitative limits and interest rates are set. Additionally, payment methods such as Apple Pay, PayPal, cards, etc. are not threatened, because the digital euro will not be a payment service, but a currency.
7. However, in practice, its use will be technically similar to today’s electronic and contactless transactions and digital wallets.
8. Payments will be made immediately and settlement will be made directly through the ECB, without going through the banking system. That is, the citizen’s transaction goes directly to the ECB system. In fact, it is proposed to create two clearing systems at the ECB. One will be for the retail part and the other for the wholesale part of the transactions. The second exists today because it is from there that all transactions between banks are cleared and settled.
9. The case is planned to run as a pilot in some European cities, before its official launch.
10. In any event, full deployment and availability at the level desired and planned by the ECB, including availability in third countries, may take three to five years.
The ECB places particular emphasis on security, transparency, immediacy and changing consumer behavior – especially among young people – but also on the threat posed by the development of cryptocurrencies. The ECB warns of the risks posed by cryptocurrencies, as they are not controlled by central banks, have high exchange rate volatility (risk) and transparency is not ensured (personal data, taxation , whitening, etc.).