The European Commission (EC) has published its legislative plans to underpin a digital euro. This would ensure Europeans can pay digitally for free across the currency zone. The proposed regulation includes safeguards for privacy and financial stability. The law doesn’t bring the digital euro into being as such. This is because it’s the European Central Bank (ECB) that needs to decide whether to issue the CBDC. Officials argue that the state-backed digital currency offers features private payment means aren’t always able to. It allows payments between friends and with higher data protection standards.
Years of technical work has has been put into this digital euro by the central bank. The legal proposals seek to ensure the digital euro can be used as a means of payment rather than an instrument for financial investments. Also, the digital euro should be a public good that would benefit the economy and society as a whole.
The EC released two proposals a few days ago. One is to ensure the cash status of the euro area, and the other is to set up a legislative framework to allow the ECB to issue digital currencies in the future. Below are the proposals that the EC put forward
Proposal 1
The purpose of Proposal 1 is mainly to maintain the role and status of cash. This is to ensure that cash continues to be a widely accepted payment method. The zone will still regard cash as the legal currency of the Eurozone. Also, the EU member states must ensure the ability to pay and obtain cash. The main reason for not allowing cash to be replaced by digital euro is financial inclusion. This is to ensure that older people or other groups that rely on cash have access to their money.
Proposal 2
This establishes a legislative framework for digital currency in order to cater to the global trend of digital currency. It brings about another payment solution. It also enhances the global status of the euro. According to the framework, the future digital euro will coexist with existing credit card or program payments. The digital euro will become a part of online payment, and people can use the digital euro to pay anytime, anywhere.
In addition, banks and online payment channel providers in the EU can distribute digital euros. Basic services should be free, and people should be able to open and hold accounts even if they do not have bank accounts.
ECB Statement
The ECB also issued a statement with regard to the digital euro. It likes the idea and accepted the relevant proposals. The ECB launched the Digital Euro Project in 2021. It also launched a 24-month probe into the design of the digital currency. This phase is expected to end in October this year when a decision will be made on whether to proceed to the next phase. The next phase will be the development and testing of related solutions.
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Christine Lagarde, President of the European Central Bank, pointed out that the euro is the most concrete symbol of the European Community. She claims that it is deeply valued and trusted by the general public. The ECB expects to continue to cooperate with other EU organizations to develop the digital euro. This is to ensure that the currency of the European Union is in line with the digital age.
Proposed regulation
The settlement of digital Euro transactions will be designed in such a way that neither the European Central Bank nor national central banks will have access to transaction data. The digital euro will be available across the entire euro area. It will be accessible through banks on request and basic digital euro services are free. The EU claims that it will be like a digital wallet. Also, it will be available for both online and offline payment. Merchants in the eurozone that accept digital payments will be required to accept the digital euro. The European Commission insists that the ECB won’t have access to people’s identities. However, several comments on public spaces still express some sort of worry.
The benefits of the digital euro
A digital euro would offer an electronic means of payment that anyone could use in the euro area. It would be secure and user – friendly, like cash is today. It would provide an anchor of stability for the euro in the digital age. The euro zone wants to make a major change in the way people make payments. The central banks have a key role to play in this process. The EU also claims that payments in Europe must be supported by a competitive and pan – European payment system. The digital euro and the evolution of the financial system are closely linked.
Privacy concerns
The European Commission did unveil a draft legislation paving the way for a digital version of the euro. However, its jitters over how to allay privacy concerns were too apparent. The EU insists that the ECB won’t have access to people’s identities when they use the new version of the currency. Some industry experts claim that the digital euro goes beyond providing a public good. They believe it will ensure the currency and European Central Bank remain relevant in a digital economy.
As crypto circulates and Big Tech brands dream of printing their own money, the EU wants to make a mark also. But critics fear it will give govt a way to snoop on buying behaviour. At the extreme end, conspiracy theorists portray the digital euro as a covert plan to phase out cash. They claim that it is a way for govt to people’s shopping habits. However, these claims are unsubstantiated and it is treated as hearsay at best.
Conclusion
The proposed regulation for the digital euro is a huge step towards a digital future for the eurozone. The regulation includes safeguards for privacy and financial stability. Also, it would offer an electronic means of payment that anyone could use in the euro area. The digital currency should be a public good that would benefit the economy and society as a whole. Some critics fear it will give govt a way to snoop on buying behaviour. However, the EU insists that the ECB won’t have access to people’s identities when they use the new version of the currency.
