The Euro Goes Digital
The euro is the official currency of the European Union, or EU, and it has been around for almost 25 years. But now, the European Central Bank (ECB) is considering creating a digital form of the euro. What does that mean, and how might it change the future of how people buy and sell things in Europe—and around the world? Here, btw takes a closer look at this exciting technology.
What Is It?
Digital currency is any money that exists in electronic form. In other words, it never takes a physical form; you can’t go to an ATM and turn digital currency into dollars or euros, the way you can with the money in a bank account. There are several different types of digital currency. The one being considered by the EU is called central bank digital currency, or CBDC, which means that the digital currency is issued and overseen by the European central bank.
Why Digital?
The key reason for introducing a digital euro is convenience. Users will be able to use an app to pay for things by using a digital wallet on their smartphones. The app can also be used by people who don’t have bank accounts, because the money is just held on their phones. For merchants, using digital currency will allow them to avoid paying fees to credit card companies for each transaction.
A digital euro also would make it possible for people to buy and sell things in Europe without going through a non-European company, such as Apple Pay or Visa. According to EU officials, this is important to keep Europeans from having to depend on other countries and payment service providers for this service. It would also help prevent a few companies from dominating the digital payment market and provide increased competition with these existing companies.
What Are the Drawbacks?
One group that is not excited about the proposal for a digital euro is Europe’s banks. They say that digital currency could put commercial banks out of business. To prevent this from happening, it is likely that there will be limits placed on how much digital currency a person can hold at a time (averaging about four thousand euros per person, a little over four thousand dollars equivalent).
What About Other Countries?
You probably make electronic payments much more frequently than you pay for things with cash, right? Banks are finding the same to be true worldwide, and so many countries, including the United States, are starting to investigate central bank digital currency, or CBDC. In fact, as of March 1, 65 countries, including Japan and Russia, have already launched pilot digital currency programs. Several countries with smaller economies—such as Nigeria, Jamaica, and the Bahamas—have already begun to use it. Here in the United States, the U.S. Treasury has announced the creation of an interagency group to study the creation of a CBDC.
The EU will be considering legislation in the next few weeks to move ahead with the digital euro, with a detailed design expected in October. Even if everything goes well, the digital euro isn’t anything the world will get to experience anytime soon. Once the proposal is made, there will be three years of testing, followed by an approval process by the EU. While the digital euro is an exciting new concept, it is important to note that people will never be required to use it; it will just be an option, and people will still be able to use traditional currency if they prefer.