ECB takes a big step towards the era of digital currencies

  • Publication publiée :15 July 2021
  • Post category:Innovation
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The Governing Council of the European Central Bank launched an "investigation phase" on Wednesday before a decision is taken in 2023 and the euro is created three years later. The e-euro is presented as an adaptation to changes in society. At the same time, the Banque de France is continuing its experiments.

The decision has not yet been made, but it already seems inevitable, following the ECB's announcement on Wednesday. 

"The Governing Council of the European Central Bank (ECB) decided today to formally launch a project to prepare for the possible issuance of a digital euro"This is the first time that the Eurosystem has been involved in the development of a digital currency," says Fabio Panetta, member of the Executive Board of the monetary institution and chairman of the Eurosystem's High Level Task Force on Central Bank Digital Currency (HLTF-CBDC).

After this decisive step, there are still several steps to be taken. "The first phase, lasting two years, will be devoted to conceptual research to determine what a digital euro should look like", the statement explains, before continuing, "At the end of these two years, we hope to be ready to begin the implementation of a digital euro, which could last three years. The success of a digital euro will depend on its added value for all stakeholders: individuals, merchants and financial intermediaries. We will design the digital euro in such a way as to ensure this success."

New form of currency

See you in 2026, or even 2025, for the actual creation of this new form of currency.

A new form of central bank money (or base money), as the existing versions will continue to exist, i.e. fiduciary money (coins and banknotes) and scriptural money (the sums placed by commercial banks in their accounts with the central bank in the Target 2 system) 

But the ECB is already convinced of the interest of this e-euro, which is seen as a natural development. 

"The era of digital currencies is upon us. Like the other forms of money that preceded it, digital money is a response to the transformations of society and technological developments"Fabio Panetta explains in the introduction to his text.

Digitization of payments

"Digitalisation is spreading to all aspects of our lives. The coronavirus pandemic (COVID-19) has shown how quickly such a change can occur. And our payment methods are also affected. More and more of our purchases are made digitally and online, and the use of cash as a means of payment is declining."

Central banks are also reacting to the lead taken by private initiatives, such as Facebook's Diem (ex-Libra) project and the rise of crypto-assets.

"Private digital and online payment solutions have many advantages, including ease of use, speed and efficiency. But they also pose risks related to privacy, security and accessibility, and can be expensive for some users. Digital payments continue to be used more by higher-income consumers, while lower-income people are more likely to use cash, reflecting their key role in financial inclusion."

The ECB does not hesitate to compare the energy consumption of the digital euro, presented as a "new page of European progress", and of bitcoin: 

"Our preliminary work has shown us that the energy required for the settlement infrastructure we used is negligible compared to the energy consumption and environmental footprint of crypto-assets like bitcoin, which requires more electricity alone than Greece or Portugal."

Public consultation and experimentation

The "investigation phase" launched on Wednesday follows a long reflection, a public consultation and a series of experiments conducted by the Banque de France to examine the feasibility of this digital euro. 

As part of this program launched in March 2020, the national central bank communicated on Tuesday the success of the seventh of the eight trials planned. It was carried out with the Central Bank of Tunisia and a group of actors led by the Prosperus company including Banque Wormser Frères, Banque Internationale Arabe de Tunisie and its French subsidiary BIAT France.

"The experiment made it possible to carry out a funds transfer operation in commercial money between two individuals located respectively in France and Tunisia using wholesale central bank digital money (CBDM) between the Banque de France and the Banque Centrale de Tunisie", explains the Banque de France's press release.

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