Updated: Jul 13
As both financial institutions and political entities brace for the emergence of decentralized technologies, we are starting to see more and more blockchain products; this time a digital euro. On October 2nd, the European Central Bank (ECB) published yet another report showcasing the benefits of digital currency. Inside it, the central bank reveals its public plans, explaining how it will utilize the digital euro both locally and globally.
Rumors of a Central Bank Digital Currency (CBDC) have circulated the net ever since the emergence of Bitcoin in 2009. Today, we finally have concrete evidence that some of the largest institutions in the world plan to implement the once niche technology. Moreover, this is not just a one-sided implementation. What we have been seeing over recent years is a global competition comparable to that of the space race in the 50s and 60s.
In the 21st century, the global race truly is global. The world is no longer dominated by one or two superpowers and countries who would not be considered powerful within their regions are getting involved as they see the benefits of this new technology. In this article, we will turn our focus on the two candidates who seem the most likely to launch a digital currency in the next two years.
The slow bureaucrat
On one side we have the bureaucratic European Union, a competitor that will push away innovation until a full legal infrastructure has been put into place. In the past, some of Europe’s most powerful figures have talked about a potential future for blockchain. In 2016, Christine Lagarde stated in an interview with the Wall Street Journal that banks will adopt digital currencies in five years. Now, as the President of the ECB, she is supposed to spearhead the development of a digital euro.
In 2019, several external factors pushed not just Europe, but the rest of the world to speed up the process. Upon realizing that Facebook’s Mark Zuckerberg may be about to launch the Libra stablecoin, fears of a massively adopted but corporate-owned digital asset sparked panic. Although the Libra stalled, it did cause the idea of digital dollars, yens, and euros to be reborn once again.
Despite all of ECB’s reports on blockchain technology and native digital currencies in the past two years, we still do not know if the EU hides its progress of digitalizing finance or if it simply delays it. So far, the ECB has published several papers on the matter, like October’s ‘Report on a digital euro.’
In its newest report, the ECB reveals that it plans to limit the digital euro to payments only and will not classify it as a cryptocurrency or stablecoin. Additionally, the report shows us that the EU plans to analyze and test how a digital currency could fit in the Eurosystem.
A series of assessments would be conducted until the first half of 2021, after which we expect that the EU will finalize its plans and start developing the currency. These assessments also include the traditional regulatory sandbox in which both private and state-owned blockchain technologies are tested.
Global or local; currency or investment?
According to the report, the advantages of a digital euro would include providing citizens access to a fast-changing digital world. As the landscape of digital retail payments changes, Europe wishes to stay competitive by adopting a digital currency and reaping all the advantages it can.
To do that, the digital euro must be interoperable with solutions inside the EU, as well as private payment solutions in the rest of the world. Moreover, it must match the ‘distinctive features of cash.’ Such a currency should also have functionalities that make it attractive as a payment solution compared to foreign and unregulated currencies.
But the digital euro will not only be for Europe. Instead, the ECB plans to turn the native digital currency into a global monetary force. One part in the report notes that ‘If non-euro area residents were to rebalance their portfolios significantly towards the digital euro, the size of and risks to the Eurosystem’s balance sheet would increase.’ But per tradition, there are several seemingly abstract and bureaucratic roadblocks that prevent the digital euro from surfacing any time soon.