Finally! A quarter of a century after the introduction of the euro, since this Wednesday there is finally a legal basis on which Europe can build a digital version of its single currency. In a world that has been digitized at a rapid pace over the past fifteen years, and in which paying with cash accounts for an increasingly smaller proportion of total payments, the step towards a public digital euro is a logical one.
The reasons to build a digital currency are many. In the first instance, Europe wants to keep a grip on the crucial utility function of the payment system. Central banks are responsible for payment transactions and a stable currency. That has been settled as far as notes and coins are concerned, which have long been the domain of the central bank. But all digital payments are now the domain of the commercial banks. That’s fine as long as it doesn’t go wrong. And if things go wrong (banks collapse, the internet is down), there is hardly any alternative to keep the economy going. That will come with the digital euro.
Secondly, Europe wants the digital currency to be as inclusive as the analogue one. It must therefore become available to everyone, regardless of whether someone has a bank account, a smartphone or the right papers. The digital euro will therefore take on various forms: in app form, as a bank card with chipknip and even as a prepaid card.
Thirdly, with the introduction of the digital euro, Europe is also breaking the market power of major American players such as Visa and MasterCard, which now handle a huge part of cross-border European payment traffic. Entrepreneurs often complain about the high costs of this, and Brussels is now building an independent system alongside this. The emergence of commercial digital currencies has also increased the need for a public variant. Better a state monopoly in the field of money than a private monopoly.
With the presentation of the Commission’s proposal, the digital euro has now become part of the public arena. It was about time. The whole and half-truths that have been circulating about the digital currency in the making deserve an open and democratic debate. In this way it can be determined what the digital euro should be, and especially should not be. It will have to be about safeguards around the privacy of paying with digital money (which in its nature will be traceable) and its so-called neutrality. A euro issued by the central bank must be able to be spent on any product or service at any time, restrictions are not appropriate.
Yet the current proposal also feels a bit like a missed opportunity. An unlimited and 100 percent secure alternative to commercial euros could also have encouraged banks to make their own systems and business models more secure. However, partly under pressure from the banking lobby, the size of the digital euro account will probably be limited to 3,000 euros. Brussels fears that an overly attractive digital euro could cause a huge shift in deposits, which could put banks in trouble. That is why no interest is paid on the balance on the digital euro account.
At the same time, it is to be welcomed that Europe is now leading the way with the introduction of the digital euro. The simple fact that the currency union will have a guaranteed digital variant of the single currency in a few years’ time is of crucial importance. Should the need arise and the commercial banks get into trouble again, there are knobs that can be turned. The refugee island that the ECB then offers can easily be expanded into a safe island in the rough sea of financial capitalism by then. European citizens deserve this protection.