Will Corona Crisis Accelerate the Establishment of the Digital Euro |

Berlin – The European Central Bank begins public consultations and tests on Monday, seeking to decide on the establishment of a “digital euro” for the 19 countries of the single currency, at a time when the Covid-19 outbreak accelerates the abandonment of banknotes, while policymakers anxiously watch the rise of private cryptocurrencies such as “Bitcoin”.

The European Central Bank’s consultations have continued for three months and will conduct a series of tests on the viability of the digital euro over the next six months.

The central bank aims to take a decision by mid-2021 on whether to launch the project, he said.

European Central Bank President Christine Lagarde said in a statement early October that “Europeans are increasingly turning to digital technology in ways of spending, saving and investing.” “Our role is to ensure confidence in the money,” she added. This means making sure the euro is fit for the digital age. We must be ready to issue a digital euro, if the need arises. ”

The digital or virtual euro will be an electronic version of euro banknotes and coins, and it will be an official currency guaranteed by the European Central Bank. It will also allow, for the first time, individuals to deposit directly with the European Central Bank.

This may be safer than depositing money with commercial banks that may go bankrupt or keeping banknotes that may be stolen or lost.

Funds can be kept outside the banking system, for example in a “digital wallet”.

It would allow individuals and companies to make daily payments in a “fast, easy and secure way,” the European Central Bank said when it published a report on virtual funds this month.

The bank emphasized that the digital euro would be “a complement to money and will not replace it.” The digital euro will be similar to Bitcoin, but it will be subject to censorship, unlike cryptocurrencies.

The digital euro can be issued or transferred using the ledger technology known as “blockchain” or “blockchain”, which is a public database that cannot be revised and is the same on which cryptocurrencies such as “Bitcoin” depend.

why now?

The COVID-19 outbreak has boosted electronic payments as consumers avoid banknotes and coins for fear of contagion.

Even in Germany, where banknotes are said to still dominate the scene, for the first time this year customers are expected to spend more money using cards than cash, according to a recent report by market research firm Euromonitor International.

The European Central Bank, like other central banks around the world, 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.

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

Frederick Ducroset, an economist at Pictet Wealth Management, told France Presse that Facebook’s plan to establish the currency “Libra” “accelerated the pace of central banks’ thinking” of the matter.

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 consider privacy issues and ensure that the digital euro is not used in money laundering operations when it assesses the pros and cons of launching the virtual currency in the coming months.

Cryptocurrencies 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 (17,030 euros).

But in recent years, central banks have begun to consider the issue of offering their own virtual funds, known as “central bank digital currency,” as a stable and risk-free alternative.

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

On Friday, the Bank of Japan announced that it will intensify its research in this area.

The Bank for International Settlements, a network of central banks, announced in January the creation of a task force devoted to researching the issue.

But the digital euro is not expected to 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 three or four years.”