The Digital Euro: will electronic money officially arrive in Europe?

All posts, News in Spain Leave a comment   Published on par Jonatan Carbonell

Digitalization is definitely present in different areas of our lives, and one of the most significant changes can be noticed in the new existing payment methods.

Since last year, several conferences have been held by European entities, with the purpose of incorporating a Digital Euro; and that currently will have two years to define its final characteristics: design, form of distribution in stores, impact on the market, among others.

Now, what is the Digital Euro? Below we will explain what this initiative consists of.

What is the Digital Euro?

As its name indicates, the Digital Euro is, for the sake of redundancy, the digital version of the European currency, i.e., it is worth the same as the physical Euro (banknotes, coins, etc.).

This is a new term called Central Bank Digital Currency, better known by its acronym CBDC. A CBDC is the “digital currency” issued by the central banks of the world’s countries.

This currency replaces cash, bringing money into a digital environment that, by analyzing its functions, can be more advantageous for individuals.

The European Central Bank states that it is not another currency, but a complement that can be used electronically, which provides the opportunity for a new way to make different payments in a more efficient, easier and faster way.

With the advent of stablecoins, governments such as those in the United States have become concerned because these currencies, such as the Tether (USDT), are not backed by the entity that insures your money in the event of a bank failure (Federal Deposit Insurance Corporation).

Moreover, they consider it a decentralized model that can be detrimental to the global economy. For this reason, central banks have begun the process of creating their own digital currencies, i.e. their CBDCs.

 

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What is the difference between the Digital Euro and a Cryptocurrency?

One question that usually arises about this topic is whether this possible Digital Euro will become some kind of cryptoasset.

The answer is no, cryptocurrencies work through a decentralized technology, where no one has control over them. While, on the other hand, the Digital Euro is backed by the European Central Bank.

In this sense, we are talking about a centrally operated currency that, as explained above, works like banknotes and coins.

However, this does not mean that cryptocurrencies are not backed by anything. There are cryptocurrencies that are backed by stablecoins or by other cryptocurrencies such as Ether, and there are even cryptocurrencies backed by different companies, such as Diem, a cryptocurrency backed by Facebook.

Advantages of digital currencies

The Digital Euro, as we have mentioned, is a CBDC, a digital currency that, although it has not yet been implemented, we can find some common advantages among all digital currencies.

Although CBDCs have not yet been issued by many countries, as many regions are still in a research phase to determine the best way to implement their digital currencies, we will explain some of the advantages they can offer:

  • A digital currency can completely replace cash, which would generate huge cost savings in printing and manufacturing of cash; as well as maintenance of facilities.

  • Another great advantage that the Digital Euro can offer, is the decrease of crimes produced by cash. Let’s analyze, one of the most common crimes that exists around the world is the theft of money, either from a store, an establishment, or individuals; which occur because physical money can be easily snatched from people.

However, with the existence of a digital currency, such as the Digital Euro, these crimes could drop considerably, or even cease to exist, due to the fact that there is a better safeguarding of the money.

  • To the above advantage we can add that counterfeiting can also be a problem solved with the implementation of a digital currency.

When we receive cash it is difficult to know instantly if it is real or not, whereas, with a digital currency, this headache goes away. Why? Transactions are executed only with digital currencies issued by the Central Bank of the country you are talking about.

  • A digital currency can create confidence in online payments. When receiving money online, people are more likely to want to trade with a digital currency issued by a Central Bank than with a cryptocurrency.

 

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Disadvantages

Although the advantages are very favorable for a digital environment such as the one we live in today, nothing is perfect, so this type of money can generate some drawbacks, which are not so serious but, we could not fail to mention in this article:

  • Anonymity may be the biggest disadvantage that a digital currency can have. This is because, as with cryptocurrencies, anonymity can create networks of scams, illicit payments and other types of cybercrime that could affect the community.

  • Digital currencies, or CBDC, must have a clean and very effective implementation, otherwise, this could generate a great disadvantage such as ignorance about this topic.

For example, if a currency is implemented in a mandatory way trying to change cash completely and without prior education about this subject, it may cause that people who do not know much about technology, may find it difficult to use it.

It should be noted that these advantages and disadvantages are based on the case that the implementation decision to be taken is that of a token, i.e. a type of currency that can be used worldwide, anonymously and that does not generate any type of interest.

 

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The Digital Euro implementation process

Fabio Panetta, a member of the Executive Committee, says the currency represents a digital symbol of Europe’s progress and integration.

However, in order to ensure its success, it is essential that the relevant studies be carried out, which is why the research phase is about to resolve details of its fundamental characteristics over a period of two years.

The final decision on the development of a Digital Euro will be taken after seeing the results of the research process. During this time, the aim is to know how it will be designed, how it will be distributed to stores and the general public, its impact on the market, as well as possible changes in European legislation.

It is normal that you wonder why it will take so long to implement it? You have to take into account that it will be implemented in all the countries of the European Union, so it is a type of implementation that requires time and constant correction of details.

On the other hand, it must also be taken into account that this is a new world that is being explored, one that many countries want to enter, but they know that a very meticulous and detailed process must be followed for it to be successfully implemented.

Currently, there are very few countries that have already implemented or carried out practical experiments in their regions, such as China, the Bahamas and Cambodia. On the other hand, in Venezuela a digital currency called Petro was launched, which, although it has similar characteristics to the CBDC, does not belong to it because it is not issued by the Central Bank of Venezuela.

The reality is that there are many countries that are thinking about this implementation, due to the digital era in which we are living, where if you do not adapt, you can suffer many delays.

It is necessary that the Digital Euro be studied and analyzed very well so that we can all benefit from this possible option to monetary digitalization, and only then will it be possible to proceed with its future implementation in the country.

Remember that, in TAS Consultancy, you can find more articles like this and other relevant topics in our blog. So, don’t forget to follow us on our social networks to stay informed about the most important topics of the moment.

 

Published on par Jonatan Carbonell

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