Italian banks have called for the creation of a digital euro. Last fall, German banks made a similar statement. And in France, the financial regulator is testing its own version of the pan-European currency. European bankers in the development of CBDC are afraid to stay behind China and the United States and are looking for technology in distributed registry and smart contracts to reduce economic costs. At the same time, the European Central Bank (ECB) has not yet made a general decision, since the bulk of payments in euros is made in cash. What is the likelihood of a digital euro and how it will differ from today's currency, DeCenter found out.
The ECB's view of digital euro
The idea of launching a fully fledged state digital currency (CBDC) captures the minds of officials around the world. China is already testing a large-scale pilot project of the digital renminbi with the participation of leading banks, retail businesses and consumers, and in the United States they are sounding the alarm, but they are not planning to issue a digital dollar in the near future. Active action is expected from the third global player in the world of finance - the European Union.
Earlier, DeCenter already examined in detail the speech of the board member of the European Central Bank (ECB), Yves Mersha, delivered at the Consensus 2020 conference. Then Mersh noted that the ECB does not see the urgency of launching such a digital currency - three-quarters of payments in the eurozone are in cash. According to him, the main issue of the discussion about the “digital euro” is whether this currency will be available only to organizations (“commercial CBDC”) or also to ordinary citizens (“retail CBDC”).
The first option is easier to implement - now the ECB provides loans to commercial banks in digital form. However, such a path is rather a half-measure. In the second case, the technology will allow the central bank to open individual accounts, but this will be a blow to commercial banks and will lead the current financial system to crisis.
Mersch proposed creating a two-tier digital euro - as a means of accumulating value for financial institutions and as a means of payment for ordinary citizens. The stimulus in such a system will be differentiated interest rates. While the ECB is in no hurry to act, central banks of individual European countries conduct their own research and experiments.
Perhaps the main “stakeholder” in the decision to launch the digital euro is Germany, which is the basis of the entire European economy. Following discussions of the Libra project last year, a merger of more than 200 German private banks, including giants like Deutsche Bank, Commerzbank and Credit Suisse, voiced its position on this subject , and later published a memorandum on the position of financial institutions on this issue.
In a statement, they expressed concern that Europe could remain an outsider in the development of digital monetary systems. Therefore, private banks should step up work on this issue together with central banks, as this is "the only way to withstand the pressure of competition from the United States, and in the near future also China." Mentioning Libra, the authors of the document also pointed to the potential of legal stablecoins and smart contracts as an effective technology for concluding and fulfilling contractual obligations. The document also emphasizes that in existing digital systems, for example, SEPA (single Euro payment zone, analogue of SWIFT), it is impossible to use smart contracts.
Authorities have not yet responded to this call. Meanwhile, a few months earlier, the head of the Central Bank of Germany, Jens Weidmann, recognized the need to digitalize money circulation, although he did not go beyond the general wording: “ I see that our duty is to offer citizens a modern, fast, Internet-based payment method. Our idea is to develop solutions that meet the latest technologies, but at the same time do not create unnecessary risks for financial stability , ”the official said.
Weidmann also recalled the experiment on trading shares with collateral management through the blockchain, which the Central Bank of Germany carried out together with the main German exchange operator, Deutsche Börse. The technical findings of the experiment were published in January this year.
Europe's second largest economy has already moved from research on the CBDC concept to testing. According to a statement by the Central Bank of France at the end of May, the country became the first among European states where it successfully completed the first in Europe real experiment with a digital euro based on the blockchain, namely, a transaction for the sale of securities.
At the same time, the European CBDC in France is so far considered exclusively in the "commercial" version - as a means that only banks and companies can use, for example, for international trade operations.
The purpose of the experiment was to understand how efficient CBDC will be for interbank settlements, to determine the additional benefits of digital currency and to assess the potential impact on financial stability. Although testing was deemed successful, the Bank of France did not provide additional details.
The experiment was conducted as part of a practical study of the digital euro, announced in March this year. By July 10, the regulator should select the 10 most suitable ways to use the European “commercial” CBDC.
The Italian Banking Association (ABI), which includes more than 700 financial institutions of the country, also reached a consensus on the need to create a digital euro. The statement issued on June 18 following the results of the discussion consists of 10 points. And the view of Italian banks on the digital euro diverges from the plans of French colleagues.
Firstly, the statement states that Italian banks are already working with distributed ledger technology as part of the so-called “ Spunta project ”. Therefore, further development of digital currency will be based on the results that the project participants will achieve.
Secondly, the digital currency is recognized as “innovation in the financial sector”, which can “bring significant added value, especially in terms of the efficiency of operations and management processes,” the document says. This reflects a positive attitude towards the idea of a digital euro.
Thirdly, Italian bankers show a “special interest” in the issue of digital currency, available to the general public. Thus, this is a signal of the creation of a “retail CBDC,” that is, publicly available money - the analogue of today's euro. It is emphasized that when creating this type of currency, it is necessary to protect the personal data of future users.
Other EU countries
Efforts to create a digital euro are also being undertaken in other EU countries. In late April, the Central Bank of the Netherlands published the results of its own study of the digital euro, where it stated the relevance of such a development. Important advantages of “programmable” digital money, according to the authors of the work, are blockchain and smart contracts, the use of which is impossible with the current infrastructure.
“A smart-contract smart contract system potentially increases demand for CBDC and offers opportunities to reduce transaction costs. In this way, CBDC can contribute to diversity and innovation in the payment market, ”the document says.
The Central Bank of the Netherlands proposed to give the country a major role in the digital euro experiment, which can then be extended to the entire eurozone. It is noteworthy that already in 2017, the Netherlands, according to the ECB report, became the leader in the share of electronic payments among countries using the euro.
Thus, the speed and desire to create a digital state currency depends on the share of electronic payments in the country's monetary system. Therefore, it is not surprising that China, whose inhabitants use little cash, has come next. But the European Union - an association of states with different economic structures, and therefore the prevalence of cash in circulation - this is only the "average temperature in the hospital" and does not correspond to the situation in some countries.
Data from the analytic portal Finanso show that electronic payments in euros will continue to crowd out cash. So, in 2019, the volume of electronic payments in the eurozone grew by almost 10%, and in general for the last three years - by 30%. These statistics were published at the end of March, so the trend only intensified - due to self-isolation measures and the refusal of people to pay in cash due to the threat of coronavirus infection.