The EU will on Wednesday take the next crucial step in launching a digital version of the euro, a controversial project that was attacked by the public, politicians and banks before it even existed.
From China to the United States, from Jamaica to Japan, dozens of central banks around the world are considering or have already introduced it digital currencies As electronic payments dominate the way people spend their money, cash consumption is decreasing.
The move to create a digital version of the single currency began in 2020 European Central Bank (ECB) President Christine Lagarde proposed the idea and the Frankfurt-based panel launched a public consultation.
Digital Euro Enthusiasts say it will complement the cash and ensure the ECB doesn’t leave a void for private, mostly non-European, actors and other central banks to fill.
Critics question the need for a digital euro and banks warn of major risks, while the ECB’s own study found that the public was concerned about data protection in payment transactions.
“If we just duplicate the existing payment infrastructure with the digital euro, that’s not a good enough business case. Currently, the digital euro seems to be a solution in search of a problem,” German MEP Markus Ferber told AFP.
The European Commissionthe executive branch of the EU, is set to release a proposal on Wednesday that will provide the legal basis for the ECB’s launch of a digital euro.
The final law must be backed by the 27 EU member states and the EU European Parliament.
The ECB is expected to officially give the green light to a digital euro in October and it is expected to be available from 2027.
The benefits “outweigh” the costs
According to an AFP draft proposal, the Commission found that the “long-term benefits of the digital euro outweigh its costs” and warned: “The costs of not taking action can potentially be very high.”
The currency would be available to residents and visitors to the euro area.
Lagarde argued during a panel discussion in March that the digital currency is important for resilience and “preserving European payment autonomy”.
Many of the means of payment are “not necessarily European,” she noted, adding that it is “very unhealthy to rely on a single source of payment.”
US giants Visa and Mastercard currently dominate the global card payments market.
Her comments are consistent with the EU’s increased focus on shifting production to Europe or closer to the Union and no longer relying on third countries.
Others, however, argue that the EU’s plans mean trouble for banks in particular.
The European Banking Federation (EBF) warned in March of a “significant risk for banks” from potential bank runs, as customers could hold their funds in digital euro accounts and wallets, removing them from banks’ balance sheets.
The draft proposal includes a provision that limits how much money people can keep in digital euros – ECB officials have suggested a cap of EUR3,000 (roughly Rs.2,69,500).
The commission also said that the digital currency will be granted “legal tender” status, meaning it must be accepted as a means of payment.
According to the draft proposal, there should also be exceptions for small companies that do not accept any digital payments.
privacy concerns
The ECB has a difficult battle to win over the Europeans. A public consultation found that privacy is the top priority for the digital euro.
To allay people’s fears, the ECB has stressed that it will not seek to control how people can spend digital currencies or use them for surveillance, as critics claim China does.
“The ECB would not impose any restrictions on where, when and to whom people can pay with a digital euro,” said ECB Executive Board member Fabio Panetta in January.
In the draft text, the Commission stated that the digital euro “will be designed to minimize the processing of personal data by payment service providers” and the ECB.
(This story was not edited by NDTV staff and is auto-generated from a syndicated feed.)
