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The European Central Bank Releases Digital Euro Report

The European Central Bank Releases Digital Euro Report

So far, several countries have expressed tangible interest in the idea of developing central bank-backed digital currencies (CBDCs). The European Union has also talked about the potential release of a digital euro, although no actual plans were publicly announced. 

Recently, the European Central Bank (ECB) published a 50-page report highlighting the main challenges that the institution would have to deal with, in order to make the digital euro a reality. 

According to a statement made by the President of the ECB, Christine Lagarde, “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.”

The institution mentioned that there are two potential CBDC designs they’re working with - the first one entails a centralised approach where all CBDC transactions will be recorded within the bank’s very own private ledger. The other design is decentralized by nature, meaning that monitored third parties would be responsible with recording and settling digital euro transactions while abiding by the rules set forth by the ECB. 

Neither of these approaches perfectly mimics the blockchain network infrastructure that cryptocurrencies rely on. However, a copy of the crypto design isn’t even desired, since it would grant EU-based authorities less control over how the digital euro is translated. According to many experts, this is exactly the main idea behind CBDCs - to create a familiar yet different digital payments infrastructure that would replace cryptocurrencies as we know them. 

However, according to the ECB, a digital euro would only be warranted in two scenarios - an actively growing demand for risk-free e-payments or a permanent disruption of the traditional payment system brought forth by cyber attacks or the Covid-19 pandemic. Similarly, a digital euro would also be required if other central banks choose to adopt similar measures, as the EU cannot allow other currencies to ‘threaten’ the financial sovereignty of the European Union. 

The ECB has already mentioned that the digital euro’s potential impact on the banking system would be mitigated through restrictive monetary policies, such as limiting the quantity of CBDC that users would be allowed to hold or transact. The digital euro project proposals have been placed in public debate until the summer of 2021.

Lastly, the European Central Bank has acknowledged that countries such as China are years ahead in the development and launch process of their own CBDCs.

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