What would the digital euro be?
The digital euro would be a ‘central bank digital currency’ issued by the European Central Bank and available to the general public. It would be exactly like cash, just in a digital version. Like cash, each digital euro held by consumers would be directly backed by the European Central Bank. It would be distributed to citizens and businesses by banks and other payment service providers.
Unlike crypto-assets, the digital euro would be central bank money. The European Central Bank would guarantee that it is safe, that it keeps a stable value, and that it can be exchanged at face value for euro cash. By contrast, crypto-assets can fluctuate significantly in value and their exchange into euro cash or even commercial bank money cannot be guaranteed.
Why do we need a digital euro?
The euro has been a symbol of Europe’s unity and strength since its inception 25 years ago. While cash is still prevalent and will remain widely accessible and accepted, more and more citizens and businesses choose to pay electronically. In this context, the digital euro has several objectives:
- To ensure that people, businesses and public entities continue to have access to a public form of digital money for payments, which is accessible and accepted everywhere in the euro area, at any time (as opposed to only relying on private solutions);
- To make available a form of digital money which ensures the same level of privacy as cash (unlike existing digital payments solutions) and is accessible to all citizens, including those without bank accounts;
- To promote innovation and competition in retail payments, including by enabling banks and other payment providers to develop new solutions for their customers;
- To support Europe’s open strategic autonomy and reinforce the international role of the euro.
Many central banks around the world are currently exploring the issuance of central bank digital currencies, and a growing number of countries have already issued such currencies.
Stablecoins and other crypto-assets that are not denominated in euro, if widely used for payments, could also undermine the stability of our monetary system. It is therefore important to establish a digital form of the euro to ensure that people, businesses, and public entities continue to have access to a public form of money in euro which is accessible and accepted everywhere in the euro area and at any time. The digital euro would also make it easier for people to pay throughout the euro area. It would bring a cash-like experience to digital payments by allowing users to pay and transfer money with a high degree of privacy, and unlike many other digital payment solutions, even without an internet connection.
I am curious as to how private such implementation can be. I hope it is just as anonymous as cash when comes to the payer. Tax evasion is bad but if ruining private transactions from a payer stand point, then we have a problem.
Even if it is exactly as private as current digital payment solutions (not at all) then its still a win over relying on visa and mastercard for everything.
I have many doubts about that level of privacy.
Until it’s done we won’t know. But my bet is that tax agencies over Europe would be able to get annual resumes of the accounts (anual flow and total amount without details of individual transactions). And under a judge order individual transactions wouls be able to be revealed.
But surely I won’t spect cash level of privacy.
If it has privacy like cash and the convenience of digital transactions over the internet the digital euro would be the perfect currency for organized crime. 500€ notes have been taken out of circulation because with those it was way to easy to transfer very large sums conveniently and privately.
Unfortunately, I don’t think all mentioned points will become a reality, unless it were somehow possible to limit the amount of money transfered and to make money transfers local only. Both are hard to impossible, depending on the exact implementation of an offline-capable “digital euro”.
At the moment the idea that I have understood reading the various documents and interviews is that the digital euro wallets will not be a sort of bank account managed by the ECB, but they will be managed by the private banks (with similar guarantees for banking inclusion as existing bank accounts) and will be interoperable in order to use the common ECB-backed digital euro.
Therefore you still have the banks managing the infrastructure; also to convince the banks to adhere and not to completely destroy the existing electronic payment circuits there is a proposal to have a limit on the maximum transaction amount.
Would make sense if that’s how they are envisioning it. But then I don’t see how it changes the status quo. Bank accounts are still bank accounts and using digital money as a regular person is not different in any meaningful way. It feels a bit… pointless, you know? But I haven’t read too much about it, so maybe I am just uninformed and am totally missing the point here.
Yes, bank accounts are still (only) bank accounts, which they have been for centuries with only cash (coins or banknotes) and paper-based accounting. Isn’t this the point? If the digital euro is to be a digital analogue for cash, surely one would expect it to play the same role as cash, which isn’t the form to store your entire wealth and belonging, but to serve as an easily tradeable and transportable form of money. The ECB doesn’t want to provide and manage bank accounts, or rather no central bank does as it’s simply not what banking has always been, it’s always been a private endeavour.
I think the digital convenience of “anonymous” payments is real, and also that the ECB wanting to implement the digital euro as an online e-commerce compatible system from the beginning, directly challenging various different payment circuits with a single universal one, is also a significant development.
Unfortunately, I don’t think all mentioned points will become a reality, unless it were somehow possible to limit the amount of money transfered and to make money transfers local only
I think that much like with regular SEPA transactions, there will be a defined maximum amount above which transactions are subject to extra scrutiny. I’d be interested whether this means that transactions above a certain amount would automatically have fewer privacy features enabled.
Such a limitation is only really enforcable with transactions being carried out by a central authority, an antithesis to the whole “cash, but digital” idea. There is no one stopping you from handing someone a billion euros in cash to someone else without a record of it. The only downside of such a direct transaction is that people have to meet face to face, count the money, be able to defend their giant pile of cash and trust the other person to a certain degree.
If it’s all digital, there will probably always be a way to link up to someone over the net and make the digital euro system think you are close to one another.
Such a limitation is only really enforcable with transactions being carried out by a central authority, an antithesis to the whole “cash, but digital” idea.
I don’t think the idea of “digital currency backed by a central bank” can work without a central authority anyway.
I also don’t think much will change in terms of how trust is handled in the financial system. I find that a little scary: Trust always comes from the system only, often relies on commercial certifications rather than strong cryptography and is not enforceable by individuals. E.g. card terminals are certified and thus regarded as trusted. But there’s nothing I could do from my end to make sure my transaction via a random card terminal is safe/goes where it needs to go/is the right amount/…
Enhanced privacy for users: The digital euro would enable users to make digital payments while ensuring their data is protected. When using the digital euro offline, the privacy of the user is the same as when they use cash.
It’s certainly a downside of other established crypto-currencies that records remain persistent and public. Private exchanges then get to know everything you did. And if they store or hold your identity/wallet, it’s leakable too.
Private processors -like PayPal - or currencies can see and know your transactions too.
Anonymity stands opposite to money laundering. So what do they intend to do? Anonymity in what way?
With the offline use of the digital euro, your bank would see the same level of data it sees when you use cash. Your bank would only have access to the personal data that is needed when you deposit or withdraw digital euros from/to your digital euro accounts, to load digital euros onto your local storage devices, or to unload them from the local storage devices into your digital euro account.
Like with a bank account and digital transactions from and to your bank account your private/personal bank remains the trusted processor. You can deposit into your digital wallet - the money of which is then no longer traceable directly - like cash you would deposit.
It’s generally a downside of digital currencies / transactions. This is also what makes me curious if they can manage to actually have some good privacy protections attached to it or not. That topic can be very bipolar in EU policies but I’ll stay cautiously optimistic for now, especially since they would have to somehow sell this to us Germans, the biggest cash lovers on this planet. I definitely don’t want a future where everything is tracked. People who are into that can move to China or whatever. The EU has a chance to really stand out vs other superpowers if they do it proper.
I like this FAQ and I really like the idea. I still don’t quite grasp the difference between regular old bank accounts and “digital Euro”. Or rather, I don’t really grasp why any private citizen would want a bank account anymore (unless they expect huge interest payments).
Yeah, I have the same question. Also the statement that it would work without internet is confusing. Would it be something like chip you carry around? It seems like a potentially interesting idea, and I’m glad to see the EU being active towards developments in the crypto world and counteract
I barely use cash nowadays. And my bank don’t really give me any interest so it would be interesting to just have the money on the ecb.
Though I suspect banks would still require to be linked with them to let you apply to a mortage, so… there goes the dream of a bankless life.
