The European Central Bank (ECB) is looking into whether it can introduce a digital euro. This must also ensure that everyone has access to the payment system and that the central bank does not lose control over the payment system to, for example, Facebook’s Libra.
The ECB, the central bank of the countries that use the euro as a means of payment, is going to experiment with a digital euro. This is partly in response to the possible arrival of the Libra, which Facebook wants to come up with.
The digital euro is still in its early stages. Wim Boonstra, special advisor and economist at RaboResearch and special professor of Economic and Monetary Politics at the VU in Amsterdam, thinks that within a few years there will be very concrete experiments.
Money laundering checks
The digital euro will become a kind of crypto currency, but it will be a completely different beast from the bitcoin, says Boonstra. The digital euro is certainly not going to resemble bitcoin technology, because it is much, much too slow and very environmentally unfriendly, he says.
It will most closely resemble ordinary cashless money, but at the central bank. However, another important difference is that crypto coins are not regulated. A digital euro is.
This means that there is a check to ensure that money is not laundered or used to finance terrorism, among other things.
Issues
There are still a few problems to be solved when introducing a digital euro. For example, blockchain technology, which crypto coins use, is unable to process thousands of transactions per second, says Boonstra.
It is therefore still unclear which technology will be used for the digital euro.
Account with ECB
In addition, the plans would require residents of the eurozone to have an account directly with the central bank, but that also causes problems. The ECB is currently not at all equipped to process payments from customers on a large scale, as ING and Rabobank, for example, are now doing.
Moreover, ordinary banks are paying more and more attention to checking that no suspicious transactions take place, which costs billions. It would be redundant if the ECB also had to incur those costs, says Boonstra.
Function ordinary banks
So there will have to be a system in which the ECB does carry out the transaction, but there is a layer between residents of euro countries and the ECB. That layer could consist of the ordinary banks.
That would also avoid the problem that the ECB, which has the task of supervising banks, has to supervise itself, Boonstra explains.
Certainty
A logical question is: what do we actually need digital central bank money for? A frequently mentioned reason is that it benefits the stability of the system. Now it is so that if you have a bank balance, you have a claim on the bank. That is to say: an agreement that you have so much money owed from them.
That is very different with cash. Cash is, in a sense, a claim against the central bank. And therefore much more certain. After all, a bank can fail. Not a central bank.
Digital central bank money is kind of a middle way in between. Instead of an agreement with the bank that you have a credit balance, you have a direct agreement with the central bank. In theory, no one should ever worry about whether or not a bank will fail and what the consequences will be for the entire economy.
Libra
Another reason may be the fear of private alternatives, such as the Libra. The ECB is afraid that such initiatives could ultimately endanger the stability of the euro, says Boonstra.
For example, if the Libra or the so-called stablecoins are used on a large scale, you are essentially relinquishing control of the money to a company.
‘We have to get rid of notes and coins’
It is a bit strange to speak of a digital euro, since the digital euro has already existed since 1 January 1999. The banknotes and coins arrived three years later, says RTL Z stock market commentator Jacob Schoenmaker.
According to him, there is talk of ‘if you can’t beat them, join them’, referring to bitcoin. “This is not at all the way we should want to go. I think that we should get rid of currency (such as coins and banknotes). A digital euro is an alternative to currency,” says Schoenmaker.
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