With the announcement of the EU launching a digital wallet next year, many people questioned whether or not a central bank digital currency, or digital euro, would be created. In June they were still sure that a digital euro is not the route they wanted to take at that time — things have since changed.
The Governing Council of the European Central Bank has recently decided to launch an investigative phase of a project to issue a central bank digital currency (CBDC). The phase will last 2 years and will address key aspects of the design, learning if it is a good investment. While they have changed their mind by launching this investigative phase, the Central Bank has made it clear that the digital euro will not replace cash nor is this a final decision as to whether it will be issued.
The phase will involve many prototypes of the euro, focus groups, and examination of the use of the currency. ECB President Christien Lagarde comments on the length of this phase are that “Our work aims to ensure that in the digital age citizens and firms continue to have access to the safest form of money, central bank money.”
Many digital currencies are known to be rather bad for the environment. During the investigative phase, one of the goals is to figure out if the CBDC can be made to be energy efficient. The ECB says that the goal is to produce a “riskless, accessible, and efficient form of digital central bank money,” with the hopes of pleasing everyone involved.
In terms of privacy and security, there are many concerns about money laundering and hacking. To help with these concerns, the ECB is looking into a structure for the digital euro that combines both centralized and decentralized elements. They are also testing a euro cap of the number of euros people can hold in their digital wallets. The current suggestion from ECB executive board member Fabio Panetta is 3,000 euros.
A few countries already have begun the process of implementing their form of digital currency, including China and the Bahamas. With 27 member states, the European Union has the potential to be the largest CBDC in the world.
Panetta tells the Financial Times that if the project is approved, it would take about 3 years for the digital currency to be put to use. It will be interesting to see whether the ECB investigative phase will be a success or diminish the idea of a digital euro forever.
News, RTÉ “ECB Inches Closer to ‘Digital Euro’.” RTE.ie, RTÉ, 14 July 2021, www.rte.ie/news/business/2021/0714/1234978-digital-euro/.
Poland and Blockchain Groups From Major Universities Are Powerful Voters in Defi Governance Protocols. “Digital Euro Project Gets Going as ECB Launches Investigation Phase.” Bitcoin News, 15 July 2021, news.bitcoin.com/digital-euro-project-gets-going-as-ecb-launches-investigation-phase/.