The announcement by Facebook in June 2019 of his intention to create a digital currency called Libra caused major central banks of the world accelerate their work to analyze the possibility of creating their own digital currencies. Even though the tech giant he abandoned his project at the beginning of 2022 due to the reluctance of the authorities, the monetary institutions have continued with the preparations. However, it is a slow process and most likely the digital euro late in reaching the virtual wallets of the citizens of the euro zone (in principle, with a limit of 3,000 euros per wallet) until between 2027 and 2030according to sources familiar with the deadlines that are handled in the European Central Bank (ECB).
Fabio Panettathe executive director of the ECB who oversees the jobsassured in May that the digital euro could be launched in “three or four years” counting from October. The sources, however, consider that the deadlines they could be somewhat older unless some event forces the process to be accelerated. Juan Ayuso, managing Director of operations of the Bank of Spaingave clues to this in July at a conference held at Cunef: “In October, a new stagewhich will be called preparation. There is no standard for how long it will last, but as a reference, in the last processes of this magnitude the preparation phases have lasted five and a half years and six and a half years“.
The ECB began its work at end of 2019 and in October ends the research phase which began in July 2021. In parallel, the European Comission presented last June Legislative proposal for a legal framework for the digital eurowho will now discuss the Advice and the Parliament Europeans. The final decision on creating the currency will be made by the ECB, but it will not come before said legal framework is approved. “The decision to issue a digital euro is not takennor will it be taken in the short or medium term,” warned Ayuso.
The payment anchor
What is the slowness? To explain it, it is necessary to understand that the only money whose value is guaranteed currently by the central bank is the physical: the coins and tickets euro. He money that citizens have in banks it’s money privatebut the key is that Can be converted in public money at any time when withdrawing cash. Public money, thus, is what is known as the monetary anchor (companies accept card payments because they know they can convert them into an equivalent amount of public money). This makes it easier for public money to fulfill its role of unit of account (that prices are set in euros). “Payments are to the economy what electricity is to a house: if the power goes out, nothing can be done,” Ayuso explained.
He rise of digital paymentsaccelerated by pandemic, explains that central banks study creating digital currencies so that they continue to act as a monetary anchor. It is about replicating in the digital environment the role that cash plays today to achieve financial stability, pricesand guarantee of operation and strategic autonomy of the payment system European. Thus, most payment companies are foreign (such as Visa, Mastercard or Paypal), which poses a risk if your countries sanction to Europe. It also seeks to mitigate the risk of market abuseas well as offer a safe solution against the volatile crypto assets or in case of operational problems of payment companies or cuts in the networks (Payments can be made without being connected to the internet). Furthermore, if other countries create their digital currencies and the eurozone does not, the euro could lose international relevance.
Advantages and risks
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But what would be the benefits for Europeans? Brussels has proposed that the digital euro be gratuitous for the citizens, mandatory acceptance by physical and digital businesses (except very small ones), and compulsory distribution by the banks. Spain has one of the largest and most advanced payment ecosystems on the continent, but this is not the case in other countries in the euro zone, which would benefit. In addition, there is no single European digital payment method that is universally accepted throughout the euro area, so transfers between countries or the payments abroad would be guaranteed. Also, it would promote financial inclusion, since people without access to a bank account could also make digital payments. It is also expected to promote the financial innovation digital with products and services extendable to the entire euro zone.
Why then the slowness? The project has so many implications that a large number of issues need to be resolved. technical and operational issuesas the way to guarantee the security and privacy of payments, the technology would be used or if the ECB would create its own virtual wallet apps Or I would use the ones from the banks. A key aspect is that you want avoid that citizens carry massively your money from banks to central bank. To grant loans, entities must keep deposits, so if they did not have them they could not finance the economy and would put on risk its liquidity and solvency. In addition, it would make it difficult fight against inflation, since the ECB rate hikes are transmitted through the rates of loans and deposits. For this reason, it is studied that the virtual wallets of digital euros have a maximum cap (talks about 3,000 euros), although larger payments could be made since such wallets would be linked to bank accounts.