It is no secret that the digital euro is a steamroller of a project. Slowly but surely, citizens of the EU will have to get used to the idea that the European Central Bank (ECB) will come up with its own digital currency. Some 15 to 20 years later than Bitcoin, but hey, better late than never. What is the timeline, and what are the implications? Will the digital euro have a decent chance of becoming popular? Let’s dive in.
The idea of the upcoming digital euro is that EU citizens will get an account with the central bank. They can then use it to do their shopping, for example with an app on their phone. It’s digital cash, issued directly by the government.
The digital euro project has moved from the investigative phase to the preparation phase, which began on November 1, 2023. One of the outcomes of this investigation phase is that the digital euro would be distributed by supervised intermediaries, such as banks. So the EU central bank will still issue the coins. But banks want a slice of the business and will take care of apps and distribution.
What is the Difference Between Current Digital Money and the Digital Euro?
Even though on the surface your digital representations of bank deposits may look similar to a digital euro, they are not at a fundamental level.
The digital euro will be a digital form of cash issued by the European Central Bank. Just like they issue notes, they will issue digital cash.
A digital euro is different from for example the current euro deposits you hold in your bank account. The latter are IOUs from the bank to you. Whereas a central bank digital currency is the Central Bank’s liability. This may sound like a minor difference, but it has big implications. A central bank can’t go bust like a commercial bank can. Also, there will be direct insight from the government into your spending – unless we believe that privacy will be a lasting feature.
Second, the creation of any amount of digital euros (or any other Central Bank Digital Currency or CBDC) does not involve lending or borrowing. Currently, money for the public is for the most part created by commercial banks, by providing loans and mortgages. This type of money creation is debt creation – which by the way is why it disappears if it’s paid back. But a digital euro is like a banknote. Sure, you can lose it, but it can’t be taken back.
Thirdly, the digital euro could be issued and held through (centralized) blockchain technology. This is not what banks are currently using. The ECB hasn’t decided yet on the tech.
Benefits?
As you would expect, the promo video from the European Central Bank is kinda cringe.
But let’s not be too outright hostile and look at some potential benefits of a digital euro or a CBDC in general.
- People who do not have access to a bank account can access the world of online payments. In addition to a normal account, the ECB has proposed a kind of credit card provided by a public body such as a post office.
- The government can directly hand out money to people without needing banks or too many other intermediaries – think stimulus checks.
- Interoperability between nations will improve. Sending money to a friend in a distant EU country can currently be slow and expensive. A digital euro would make it easy and fast.
Reasons…
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
