Last week, the European Central Bank published a report published addressing the possibility of the issuance of a digital euro. The report was prepared by the Eurosystem High-Level Task Force on central bank digital currency (CBDC) and approved by the Governing Council thus representing he importance of the document in regards to the potential of a digital currency issued by a central bank.
ECB President Christine Lagarde, said Europeans are increasingly turning to digital in the ways they spend, save and invest.
“Our role is to secure trust in money. This means making sure the euro is fit for the digital age. We should be prepared to issue a digital euro, should the need arise.”
Crowdfund Insider has received several comments from industry insiders regarding the possibility for a digital euro – something many observers believe is inevitable.
Jackson Mueller, Director of Policy and Government Relations at Securrency, had this to say:
“A digital Euro should simply be viewed as another option for citizens to utilize as a form of payment. That’s the beauty of this space – optionality. What’s essential to get right (and to understand) is how these alternative forms of payment, whether a digital Euro, cryptocurrency, stablecoin, digital securities, or other assets, can coexist and interact with each other. There are benefits to the alternative forms of payment presented, such as anonymity and privacy. In short, a digital Euro could provide customers with greater comfort in that it is government-issued/backed, but that won’t necessarily crowd-out other developments in the privately-issued stablecoin space, given the unique attributes associated with these forms of payment.”
Mueller believes that it is key that individuals have a choice and are empowered to engage with different types of digital assets, depending on their personal preferences and comfort levels.
“The EU’s digital finance package is simply a recognition that these alternative forms of payment are here to stay, and that an individual’s preference in utilizing different forms of payment and the mediums by which to deliver those payments are evolving. By wrapping a supra-national regulatory structure around this, the EU is intent on driving responsible standards among the EU-member states and, given payments’ cross-border functionality, internationally,” stated Mueller.
Johannes Kaske, Sales Director Germany at METACO, said the ECB report resonates well with the ecosystem:
“While many stakeholders might have hoped for a more concrete commitment, the report articulates the perspective of the ECB and provides the guiding principles of a potential implementation, postponing a clear decision on the digital Euro to the middle of 2021. However, it is significant that it confirms the issue as a priority on the regulator’s political agenda. While many open questions remain unanswered, the ECB takes a clear position on two main high-level issues. First, a digital Euro is not intended to replace, but complement cash. The latter is still heavily used by citizens among member states as a traditional and anonymous means of analog payment. I expect similar dynamics in the space of cryptocurrencies, which would remain relevant alongside a potential digital Euro as the private and anonymous means of digital payment. Second, the ECB prefers a model, whereby access to the digital Euro is intermediated by the private sector, thus lowering concerns of disintermediation in the banking sector and providing avenues for business model innovation. Assuming a DLT-based digital Euro, this could give rise to the adoption of security tokens as frictionless fiat exchanges could be done on chain. Stablecoins, on the other hand, might face challenging times in the future, especially if backed by one asset (such as the Euro) as opposed to a currency basket.”
Kaske said that while the report is a relatively small step towards a concrete project, it will likely further move up CBDCs on the agenda of all policymakers. He believes that the EC is trying to catch up with existing initiatives such as the Chinese digital Yuan project.
“Other major jurisdictions like the US are likely to follow soon. The EU can’t afford to be left behind in the digital transformation, again,” he added.
Dave Hodgson, Chief Investment Officer of the NEM Group & Managing Director of NEM Ventures, said the consultation is a positive step forward in the long path towards a digital euro
“It seems common sense that in a monetary system that is increasingly digital, that we would have a formalized parallel to the digital branch of the Euro,” said Hodgson. “I view the use cases of these types of assets as more similar to government backed stablecoins rather than traditional cryptocurrencies, and that the two can coexist in the same way as non-digital Fiat and crypto do currently. It is promising to see more central banks making strides forward in this space, and to see the ECB following the groundbreaking steps of some of their member state governments and central banks, such as Lithuania and Estonia, in cementing digital services.”
Luciano Nonnis, CEO and Founder of DXone, said the CBDCs are often celebrated as signs of crypto adoption yet they have more in common with digital entries in a fiat bank account than crypto:
“In many ways, they remove the founding principles of cryptocurrency, such as financial privacy and sovereignty, while replacing them with nothing of the sort. Cryptocurrencies decentralise data, while CBDCs centralise data. CBDCs have been proposed in some countries as a replacement for cash, which could drive people into cryptocurrency like Bitcoin, as well as alternative assets like gold and silver,” shared Nonnis. “Regulators around the world are taking a close look at stablecoins, perhaps precisely because they could serve as competition to central bank digital currencies. Stablecoins, like Tether, act like a Central Bank in that they burn and create to regulate the market price, without the regulations or protections in place to protect consumers.”
Nonnis said that the EU’s trademarking of the term digital euro means the EU will likely institute strict regulation when it comes to a digital currency. He believes that protectionist policies around the euro will ensure the bloc examines closely whether the euro should be accessible by households and firms directly or through intermediaries, as well as whether digital euro holdings of individual users should be limited.
“They might also determine whether or not startups can issue unofficial digital euros altogether. At this point, most countries have digital fiat currency on their radar already. China appears to be the world leader in the creation of a central bank digital currency, having already piloted the technology in multiple cities throughout the country,” Nonnis said. “And Europe and the US have also examined closely the creation of a CBDC. Some reports posit the US could introduce a digital dollar as early as January 2021. China, Europe, and the US will serve as the example for how to do a central bank digital currency, but at this point––regardless of how the digital euro progresses in the coming days––central bank digital currencies are on the radar of world leaders and financial authorities everywhere.”