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A New Horizon: ECB's Discussion of a Digital Euro


8 October 2020

As of recent, the European Central Bank has been in discussions regarding the creation of a digital euro. While not undermining the current form of cash payments, this proposal states that the digital euro will work complimentary to the traditional cash form. A proposal of synergy was lightly examined on Friday, October 2nd.

“The euro belongs to Europeans and we are its guardian. We should be prepared to issue a digital euro, should the need arise.” Christone Lagarde, President of the ECB

One major benefit the ECB is claiming is that the new digital version of the currency will help cushion the impact of major disasters, or pandemics. Essentially, when all loss fails and cash is less accessible, or it is advised to limit in person contact, the digital euro is our hero!

Christine Lagarde, the President of the ECB, writes about two major trends that the ECB must not be bystanders in, but rather acting on these initiatives. The two key trends as laid out by Ms. Lagarde are as follows: changing consumer preferences, and the completion to dominate payments on a global scale.

“The euro has done well so far, providing a currency that Europeans trust. We need to make sure that our currency is fit for the future. Inaction is not an option.” Fabio Panetta, ECB Executive Board Member

To begin with, the first initiative the ECB addressed in this new digital enabled era was the on-set change of consumer preferences. The COVID-19 pandemic has acted as a catalyst for advancing this new digital revolution of the digital euro. As early as February of 2020, in-store payments dropped significantly, whereas e-commerce and electronic banking transactions grew exponentially not only in Europe, but globally. This change has enabled people to already have a lifestyle that is prepared for the digitally enabled euro.

Next, the second initiative Christine Lagarde addressed is the competition to dominate payments on a global scale. As explained by the ECB, currently there is a limited number of providers in the payments market and Europe has fallen behind the competition. Overall, it is safe to say there is a disconnect in digital payment integration with the Euro. There are other technology companies that provide a digital platform for banking that are ahead of the ECB. These companies are now setting a bar that the ECB aims to surpass and exceed expectations in the possible new roll-out of the digital euro.

Arguably, the addition of the digital Euro has brought up claims on the monetary sovereignty of the currency. Will this affect the overall jurisdiction of the Euro? Will this also entail a third party distributor, or technology provider. All of these concerns are unanswered as of today and still being researched.

A few requirements of the digital euro were laid out in the discussions and are as follows: the digital euro must be safe, accessible to all citizens and firms, private, compliant and robust in nature. In preparation for building the digital Euro the ECB is prepared to combat potential events before they arise such as the international European card outage in the Summer of 2018, and personal data protection.

Currently, the ECB is in its preparation stage, in-line to come to the decision of launching the full digital euro project towards the middle of 2021. If the decision comes to a close, the ECB has stated that the project of the digital euro will then transcend for future needs. The ECB is aiming to stay present and has made positive transformative changes towards the ever-changing world and needs of the people.

“These efforts form part of our readiness to face the ongoing digital transformation in retail payments, which does not necessarily follow a linear path…Central banks can and should, within their mandates, be agents of change and fulfil their responsibilities towards citizens.” Christone Lagarde, President of the ECB

This article was written and submitted by eXcentral. 

Disclaimer: This material is considered a marketing communication and does not contain, and should not be construed as containing investing advice or a recommendation, or an offer of or solicitation for any transactions in financial instruments or a guarantee or a prediction of future performance. Past performance is not a guarantee of or prediction of future performance.

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76.81% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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