The Digital Euro: A New Era for European Currency Control

As the European Central Bank heads to Lapland to discuss the impending launch of the digital euro, questions about its implementation, operation, and impact continue to loom. The intangible, controllable currency will gradually replace physical euros, leaving some citizens uncertain and concerned about its transparency and the role of the ECB.

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Next week the central bankers of the European Central Bank will travel to distant Lapland.

There they will discuss all the outstanding issues and questions that remain to be answered before the introduction of the “digital” euro enters the final stretch for its “circulation”.

October is the deadline for giving the green light for the “invisible” euro to be launched alongside the “paper” currency. The difference is that the digital currency will absorb most of the physical and electronic circulation of the single European currency.

The “mysteries” that accompany the birth of the “new” kind of money are many and for some of them there are answers from the ECB’s side.

For some others the answers are merely … assurances.

The “digital” euro is an intangible form of currency in total control and at all levels of its existence, by the ECB in Frankfurt.

If the paper euro, in order to leave our pocket, our “mattress”, or our drawer, to move somewhere else, needs the direct involvement and consent of its holder, with the intangible digital euro, a command from the digital circulation control center at the Central Bank will suffice.

If for the paper euro, monetary circulation takes into account accounting quantities (in the form of debt, credits, etc.) and to change it requires “measures” such as reducing or increasing interest rates, removing or extending the reinvestment of APP, PEPP, TLTROs, etc. maturities, for the digital euro, a programming command from the monetary circulation control center will suffice.

In short, the ‘digital’ euro is a currency that will gradually replace the ‘paper’ currency and will be without the possibility of counterfeiting – despite the ‘hacking’ of the ECB’s systems – under the ECB’s absolute control, beyond any possibility of controlling its holder.

In other words, the existence of the last digital currency will be under the control and knowledge, every second of its existence, of the ECB’s ‘accountants’.

For this reason, moreover, many reservations have emerged in the polls and surveys carried out by the ECB, which show the citizens’ ignorance and lack of confidence in something that they will not be able to physically touch and directly control.

Answers to the questions

The ECB has attempted to answer some of these questions.

Would the digital euro be an alternative currency within the Eurosystem? The ECB’s answer is a clear “No”. As explained, “a digital euro would simply be another way to make payments with the euro, our single currency, in Europe. It would be convertible one-to-one with banknotes.

The “digital euro” is expected to “respond to the growing preference of citizens and businesses for digital payments”.

How exactly will it work?

“The digital euro would offer an electronic means of payment that anyone in the euro area could use. It would be secure and user-friendly, just like cash is today. As central bank money issued by the ECB, it would be different from ‘private money’, but you could also use a card or a phone app to pay with a digital euro.”

According to the ECB’s reasoning, “we are launching a digital central bank currency in Europe to meet the growing demand for secure and reliable electronic payments. The issuance of digital money by the central bank would provide an anchor of stability for payment and monetary systems. The digital euro would also strengthen the monetary sovereignty of the euro area and promote competition and efficiency in the European payments sector.”

Will it replace the “paper” euro?

The ECB responds by claiming that “No, a digital euro would complement cash, not replace it. Cash will continue to be available in the euro area. The digital euro would work alongside cash in response to the evolving consumer demand to pay digitally, in a fast and secure way…”…

Will it create a problem for banks as every citizen will have an account with the ECB through which, with the full knowledge of the ECB, they will be credited with their money?

The answer and here without much clarification attempts to be reassuring: “The digital euro should not have a negative impact on the financial sector. In order to do so, we will take into account the following requirements: i) the digital euro should be used primarily as a means of payment and should not be converted into a financial investment instrument; and ii) supervised intermediaries should be involved in the management of the digital euro.”

Moreover, “A digital euro would be central bank money. This means that it would be backed by a central bank designed to meet the needs of citizens: it would be risk-free and respectful of privacy and data protection. Central banks have a mandate to preserve the value of money, regardless of its physical or digital form…”.

And finally, how is it different from cryptocurrencies?

Here of course there is the undeniable truth that “The stability and reliability of stablecoins ultimately depends on the entity that issues them and on the reliability and enforceability of their commitment to maintain their value over time…”. Something a central bank like the ECB can do, but not a private cryptocurrency issuer. As well as the fact that “Private issuers can also use personal data for commercial purposes…”.

Bottom Line

The truth of course is that the introduction of the digital Euro will allow the ECB and its single monetary system to control with a single mandate the range of liquidity and the “cost” of money without needing the interventions or approvals of third parties or even the owners/fundholders to increase or decrease it…

So it is understandable how important the digital Euro will be for the ECB in its management of the complications it causes in debt and inflation issues…

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