The ECB Digital Euro project and how it could affect the crypto market – Bankless Times
The European Central Bank (ECB) recently announced its intention to launch a digital version of the euro. The investigative phase of the Digital Euro project would last around 24 months and would focus on the design and distribution of the digital Euro.
According to the ECB, the digital euro will be designed to complement cash, not replace it. It must therefore be able to meet the demands of Europeans, while preventing illegal activities and any undesirable impact on monetary policies and financial stability.
What is the digital euro?
A digital euro is essentially an electronic version of euro banknotes and coins. It will be like a digital wallet that eurozone citizens could keep at the ECB. It is believed that this might be safer than keeping your money in established banks, which can go bankrupt, or holding money, which could be lost or stolen.
The ECB cannot potentially run out of euros. This means that digital euros would be inherently more secure than their private sector counterparts.
However, you may not be able to convert all of your savings to digital euros. Otherwise, the security of the digital wallet might be so appealing that other commercial banks might run out of money. It is expected that there will be a cap on how many digital Euros you can own. There could also be a penalty for holding digital euros beyond the prescribed limit.
What is the digital euro for?
The ECB is not in favor of digital payments being entrusted to the private sector for fear of a scarcity of physical cash. For example, the circulation of banknotes and coins in Sweden is decreasing from year to year. Over 85% of the total population has access to online banking services, which is why only 2% of all transactions are made in cash. Digital currency is widely accepted in Sweden, which has also led to an increase in crypto trading.
The ECB is also concerned about digital payment providers such as Visa and Mastercard, which are not European companies. He also raised concerns about how private digital payment companies are using the transaction data of European residents.
The news of Facebook proposing to launch its own cryptocurrency Diem in 2019 has further accelerated work on the digital euro. Facebook’s plan to create its own digital currency was seen as a potential threat to central banks’ primary purpose.
According to Fabio Panetta, member of the ECB’s executive board, “Over the centuries, the sovereign has provided its own currency to citizens as a symbol of stability, security and confidence. Providing money as a public good is at the heart of the mission of central banks. “
Residents of the Euro zone have free access to a secure and globally accepted means of payment in the form of cash. They should have the same for online and digital payments as well. A digital euro would lower the cost of transactions. This would encourage financial inclusion by making digital payments accessible even to those who do not have access to financial services. Another advantage of the digital euro would be to allow users to make their purchases in all points of sale and countries in the euro area.
How could the digital euro affect the crypto market?
The field of cryptocurrencies and crypto trading is increasingly crowded, with new players entering the market on a regular basis. As such, it is a common concern whether there is still room for the digital euro. It will take a few more years to see its launch.
According to Euro News, a digital euro will be worth one euro and will be linked to the fiat currency of the euro area. Its value would be supported by the ECB and therefore would not be as volatile as other digital currencies.
Many cryptocurrencies have come under scrutiny by regulators due to their increased volatility. Bitcoin peaked at $ 55,000 in April, but fell 50% due to China’s crackdown on crypto trading and mining.
Stablecoins are a type of cryptocurrency that is usually pegged to an asset such as the US dollar that doesn’t change much in value. They are considered less volatile because they are indexed to traditional hard currencies.
Just like the ECB, other central banks are also considering offering their own digital currency called Central Bank Digital Currencies (CBDC). CBDCs are considered a stable and risk-free alternative to cryptocurrencies. For example, the Bank of England is considering launching “Britcoin” and the Chinese central bank is offering “Renminbi”.
What does the future look like?
CBDCs will be the face of technological transformation and transactions over the coming decades. The Digital Euro project launched by the ECB will focus on finding workable solutions to ensure faster and more energy efficient use of the digital Euro.
A digital euro would significantly affect European and global economies. After the US dollar, the euro is one of the most traded currencies in the world. It is also the official currency of 19 of the 27 Member States of the European Union, with more than 26 billion banknotes in circulation as of May 2021.
However, when it comes to digital currencies and crypto trading, the competition is intensifying. China has been working on a digital Yuan since 2014 and the Bahamas have already launched their CBDC Sa