Home / news / After China’s move … When will we see the “digital euro”? What are its features?

After China’s move … When will we see the “digital euro”? What are its features?

The European Central Bank on Monday launched public consultations and tests in an effort to decide whether to establish a “digital euro” for the 19 single currency countries.

The move comes at a time when the (Covid-19) outbreak accelerates the abandonment of banknotes, and also comes after China launched its new digital “yuan” currency, as central banks around the world are racing to issue their digital currencies to modernize payment systems, as well as to ward off potential competition from currencies. Crypto issued by private parties such as “Bitcoin”.

What is the digital euro?

The digital or virtual euro will be an electronic copy of euro banknotes and coins, and it will be an official currency guaranteed by the European Central Bank, and it will also allow individuals to deposit directly with the European Central Bank for the first time, and this may be safer than depositing money with commercial banks that may go bankrupt, or Keeping banknotes that could be lost or stolen.

Similar to cash, money could be kept outside the banking system, in a “digital wallet,” for example, that would allow individuals and companies to make daily payments in a “fast, easy and secure manner,” according to what the European Central Bank said when it published a report on virtual funds this month.

The bank confirmed that the digital euro will be “a complement to money and will not replace it”. The digital euro amounts can be issued or transferred using the account records technology known as “Blockchain” or “Blockchain”, which is a public database that cannot be revised and is the same as Cryptocurrencies similar to Bitcoin depend on it.

The world’s central banks are racing to issue their digital currencies to ward off potential competition from private cryptocurrencies such as Bitcoin (Reuters)

why now?

The outbreak of (Covid-19) has boosted electronic payments as consumers avoid banknotes and coins for fear of transmission, and even in Germany, where banknotes are said to continue to dominate the scene, customers for the first time this year are expected to spend more money using cards than cash According to a recent report by market research company Euromonitor International.

Like other central banks around the world, the European Central Bank also fears that it will lag behind the virtual currencies issued by foreign private parties, such as Bitcoin or Libra, the currency that Facebook is expected to launch.

If a large number of eurozone residents switch to virtual currencies operating outside the European Central Bank, this may affect the effectiveness of its monetary policy measures.

Frederick Doucrosette, an economist at Pictet wealth management company, told the French press that Facebook’s plan to establish the “Libra” currency has accelerated the pace of central banks’ thinking about the issue.

What are the risks?

People may avoid opening traditional accounts in favor of digital ones, which would weaken commercial banks in the eurozone, and the risks may be greater in times of crisis when savers prefer to flee to the safety provided by the “digital euro” and thus push dealers to withdraw their money from traditional banks. .

To avoid this, the European Central Bank may propose to limit the amount of digital euros that everyone can own or exchange. The European Central Bank will also look into privacy issues, and ensure that the digital euro is not used in money laundering operations when it evaluates the pros and cons of launching the virtual currency in the coming months. .

Coronavirus has boosted electronic payments as consumers avoid banknotes for fear of contagion (Shutterstock)

What other agencies do this?

Digital currencies issued by private parties are very volatile. For example, Bitcoin has lost nearly half its value since it reached its highest price in late 2017 at $ 20,000 (17030 euros), but in recent years, central banks have begun to consider the issue of offering their own virtual money. It is known as the “digital central bank currency” as a stable and risk-free alternative.

The Chinese central bank began experiments with digital currency in 4 cities in April, and the Bank of France began similar tests.

On Friday, the Bank of Japan announced that it would intensify its research in this area, and the Bank for International Settlements, a network of central banks, announced in January the creation of a working group dedicated to researching the issue.

When will the currency start to be used?

The European Central Bank launched a 3-month consultation beginning on Monday, and will conduct a series of tests on the viability of the digital euro over the next six months.

The central bank aims to make a decision by mid-2021 on whether to launch the project, he said, but it is not expected that the digital euro will come into use anytime soon.

A source familiar with the project said that for the initiative to take effect, it would take between 18 months to 3 or 4 years.

China is in the lead

The Chinese central bank is issuing digital coins worth 10 million yuan ($ 1.5 million) to 500 randomly selected users, a move that some consider the country’s first public test of the yuan’s digital payment system.

As of last Friday, anyone in Shenzhen, southern China, can apply to join the program through the country’s 4 largest banks.

But only some will win 200 yuan via lottery, according to the local government and banks.

Winners can use the digital currency at 3,389 retail outlets, including Sinopec gas stations, Walmart stores, CR Vanguard malls and Shangri-La hotels. La).

Kenji Okamura, the top Japanese diplomat involved in financial affairs, said Thursday that China is seeking to gain a leadership advantage in its efforts to develop a digital currency.

A group of 7 major central banks, including the US Federal Reserve, set out to determine what digital currencies might look like, in an effort to catch up with China’s pioneering role and outpace private projects such as the stable currency of Libra affiliated with Facebook.

Besides the Federal Reserve (the US Central Bank) and the Bank of England, among the seven banks that have allied with the Bank for International Settlements, the European Central Bank, the Swiss National Bank, and the Bank of Japan are among the banks.

Source link

Leave a Reply