The European Central Bank will exercise control over the currency, according to the report.
The body intends to make it clear that the Digital Euro would not be a crypto asset.
As part of the start of the public consultation period on the issuance of the Digital Euro, launched on October 12, the European Central Bank (ECB) predicts that in mid-2021 it would be possible to launch the project, starting a research phase.
The idea is that – within three months – at the close of the current consultation period, and after other tests, the decision is made to start the project or not. The probable launch will be followed by a research phase on the requirements of users and service providers. So informs the ECB on its official site, while asking the public to participate in the consultation by answering a survey.
Citizens, companies, NGOs, trade unions and academic organizations can participate in the survey. The ECB asks them to rank the possible characteristics of a future digital currency in order of importance. It also invites to describe the challenges that would prevent them from using the Digital Euro.
The idea of these preliminary phases is to be able to identify at least a minimum viable product, capable of meeting the requirements described in the report presented by the agency in early October.
The document, entitled “Report on the Digital Euro”, assesses the impact of the issuance of a central bank digital currency (CBDC) in the Eurosystem. It explains the characteristics that the digital asset should have to be functional in the European Union.
In this sense, it is pointed out from the beginning that the Digital Euro it would be a direct responsibility of the central bank, “Offered in digital form for the use of citizens and companies for their retail payments.” This property places the digital currency within the retail CBDC classification cash like, as explained in an article published in CriptoNoticias.
Marking the differences between the Digital Euro and crypto assets
In the presentation of the public consultation, the ECB establishes that the Digital Euro must have various features, including ease of access, robustness, security, efficiency and privacy, in addition to compliance with the law.
When evaluating the potential benefits of digital currency, the European Central Bank takes into account the rapid changes taking place in the retail payments sector. It considers that the Eurosystem must be equipped to issue digital currencies in the future.
The report sees the Digital Euro as a mechanism that could serve to increase options, competition and accessibility with respect to other forms of digital payment, supporting financial inclusion.
However, the agency wants to make clear that the Digital Euro will have nothing to do with crypto assets. He emphasizes that cryptocurrencies are different from the money issued by a central bank “because their prices are volatile, lacking an intrinsic value, without a reliable institution to back them.”
People using a digital euro would have the same level of trust as with cash, as both are backed by a central bank, which is something that crypto assets and stablecoins cannot provide.
European Central Bank
It is worth noting that the definition of cryptoasset that the ECB manages leaves aside considerations on the use of cryptography for the issuance of digital currency. If this tool is taken into account, the Digital Euro would then be a crypto asset.
Also, although the report makes no specific mention of cryptocurrency mining, it seems to make a comparison when it highlights that Europe’s digital currency “could represent an option to reduce overall costs and the ecological footprint of some other existing payment systems.”
The organism waits that the Digital Euro works like the euro in general. “We want to ensure that the value of our money is preserved and that any form of digital euro is ultimately safeguarded and regulated by the central bank,” they state.
The ECB thus intends to regulate digital currency in a similar way to fiat currencies, just as China plans to do with the Digital Yuan. It is not clear if would be subject to the depreciations that are usual in fiat money. It must be remembered that the idea of preserving value is sometimes contradicted by some measures taken by central banks, such as inorganic emissions of money that lead to the devaluation of currencies.
On the other hand, there is still no certainty about the role of the Digital Euro as a tool to strengthen the monetary policy of the European Union.
A more detailed analysis could shed light in the future. To this end, the agency will prioritize measures that counteract adverse effects on financial stability. Consequently, the issuance of the digital currency will respond to joint evaluations with other European organizations.
Dilemmas of the Digital Euro: centralization and privacy
Among the considerations that the report makes about the probable characteristics of the Digital Euro, governance and privacy are discussed.
On governance, the material emphasizes that the European Central Bank will exercise control of the digital currency. Analyzes the characteristics of centralized and decentralized emission systems, and raises the possibility that the Digital Euro has an intermediate system.
With the first option, the ECB would be in charge of the entire process, from the issuance, circulation and operations of the CBDC. The complication of this system stems from the fact that it requires the bank to acquire new skills and prepare administratively and technologically, which would require many resources and institutional changes.
Decentralization, for its part, would delegate the work to another organization that would operate with its authorization, while an intermediate system would make it easier for other entities to carry out part of the activities. Something similar to what is planned with the Digital Yuan, which will be issued by the central bank of China but operated by the banks.
Whatever the choice, “it will always be subject to strict supervision by the Eurosystem,” says the ECB, making centralized and intermediate systems more viable.
Regarding privacy, there is talk of the dilemma between individual rights and public interest. “European regulations do not allow anonymity in electronic payments and the Digital Euro must comply with regulations,” the report indicates. The solution seems to opt for the choice of a variable privacy system, depending on the amount of user transactions.
Until now all these approaches are tentative. At this early stage of the project, the concept is hardly being worked on and practical experimentation on possible designs has begun. Test development has been launched in Spain, While the public consultation is made and is discussed with international stakeholders and partners.