In the past few years, blockchain and cryptocurrencies have become increasingly popular, to the extent that the latter has spread so enormously in recent years to the point of reaching institutions of all the world’s largest economies, and their Central Banks. China itself, for example, through the People’s Bank of China, has already begun testing its own digital Yuan in 2020 by distributing 200 digital Yuan to each of the 50,000 participants in its trial project.
The cryptocurrency race, however, does not only concern central banks but also the private sector and internet giants: Facebook has long since announced the creation of its own digital currency, Diem (formerly Libra), which should enter the market in the first months of 2021, forcing central banks to follow suit and take action. As ECB Board member Fabio Panetta recently pointed out: “The introduction of a digital Euro would support Europe’s drive towards continuous innovation, while also contributing to its financial sovereignty and strengthening the international role of the euro”.
The European Central Bank has launched its own study path towards these realities, with the aim of creating its own digital Euro and thus being able to remain competitive in the world market. According to the European Parliament’s analysis “Public or Private? The Future of Money” from December 2019, the digital Euro would be classifiable as a Central Bank Digital Currency, meaning “a form of digital currency issued and regulated by a nation’s monetary authority.” Thus far, the ECB is limited to cash and reserves held by private banks at the ECB itself, but should the digital Euro become a reality, this would represent a first. Households and businesses would be able to create their own personal current accounts with the Central Bank itself, thus avoiding going through banking institutions.
Digital Euro could also be great news for the safety of savers: the European Central Bank, as well as all other Central Banks, cannot technically fail, because they are protected from insolvency due to their ability to create money and therefore would guarantee absolute safety in savings.
The president of the ECB, Christine Lagarde, in recent days has announced that the Digital Euro will soon become a reality, and that the European Union “must be ready but always having security in the foreground” and added that “Looking at experiences in the rest of the world, in China, where experiments are underway on a ‘Chinese scale’, it took five years from the first project to this point. So as far as we are concerned it will not happen tomorrow, it will take time”. Accordingly, we can derive from these quotations that the European digital currency may not be expected to become a reality before 2025.
We at D’Andrea & Partners will continue to keep you updated on news regarding Digital Euro and Central Bank Digital Currencies in Europe as well as around the world. In the meantime, should you have any questions, or you need any additional information, please do not hesitate to contact us at firstname.lastname@example.org.