Introducing a digital euro
Upgrading money to the digital age
Just as the internet revolutionized the way we communicate, technology is radically challenging the way money could work in the future. Policymakers will soon have to make decisions on how to make the best out of those technologies. By introducing a public digital euro, the European Central Bank could provide a safer and more efficient alternative to bank money and cryptocurrencies.
Right now, people have little choice but to use private banks, aside from hoarding cash under a mattress. Few people are aware that the money in their bank accounts exist only as money on a computer screen, and is legally the property of their bank. The bank owes that money to people, but the money does not belong to them.
By contrast, physical cash (banknotes and coins) is the only form of money that is actually created by national central banks and that is not attached to a particular debt from a bank to individuals. When the central bank issues cash, this also creates an income for governments – known as seigniorage. In addition, cash is the only payment system that is entirely free of charge, and accessible to everyone, including those who don’t have a bank account. In fact, coins and banknotes are a valuable public utility service.
Why does the future of cash matter?
From contactless cards to mobile apps and cryptocurrencies, today’s digital technology is everywhere and enables us to make user-friendly payments. With the increase in financial technology, there is a risk that cash will disappear. If that happens, this would mean that the entire money and payment system would be left in the hands of a few increasingly powerful private financial companies. We would leave those companies with even more power to monitor what we pay for and who we exchange with.
Not to mention, without the ability to withdraw cash, there is no way to opt out from the current banking system. Money is a public good. Technology can allow us to redesign our monetary system so it works in the public interest.
Public digital currency – Making the euro citizen-friendly
Positive Money Europe advocates for the introduction of a public digital currency system in the Eurozone. With such a system, the ECB would essentially allow citizens to store their money at the central bank and make all sorts of basic payments and transactions with it. In essence, a public digital currency has the same properties as cash (free of charge and non-debt based) on a digital format.
The digital euro would not replace physical cash, and we believe your ability to use notes and coins should be protected.
The digital euro system would interact with the privately run banking system, meaning that people could move their money out of their commercial bank accounts to their digital euro account and vice-versa. A “digital cash” system would remove a need for the Government to bail out “too big to fail” banks, because money stored at the central bank would be risk-free. This system could make deposit insurance schemes less necessary.
Public digital currencies would remove the banking system’s privileged access to central bank money. By allowing people to use central bank money as well, it would reduce the concentration of economic power in a few large institutions. Because people would have more freedom with their money and less implicit public subsidies, it would force the banking system to be more ethically responsible and competitive.
Latest news on digital euro
The ECB is currently working on introducing a digital currency – to exist alongside banknotes – that citizens and firms can use for everyday payments. A digital euro would be safer than bank deposits and inherently more stable than crypto assets such as Bitcoin. However, many are worrying: How will the ECB make sure that the digital euro respects users’ privacy?
The European Central Bank recently closed a survey asking interested individuals and organisations for their views on a digital euro. Positive Money Europe responded to the survey, making clear what we view as important in designing a digital euro that truly benefits people.
International Monetary Fund head Christine Lagarde said central banks around the world should consider issuing digital currency.
Why should we introduce a digital euro?
Money as a Commons
A digital euro would ensure we don’t lose the public utility of cash as a public payment system.
All legal resident, including homeless people and unbanked citizens would be entitled to a free or low-cost basic bank account.
Safety of Payments Systems
A digital euro would provide a secure and standard, interoperable digital payment instrument managed by the ECB.
Issuing a public digital currency would maintain governments’ seignoriage income regardless of the future use of physical cash.
Instead of relying on intermediaries such as banks and clearing houses, money transfers and payments could be made in real time, directly from the payer to the payee
Digital euro accounts would compete with bank deposits and thus increase competition between banks to attract bank deposits, for example by offering remunerated deposits.
Improve Monetary Policy
A digital euro scheme could constitute a new channel for monetary policy transmission and facilitate the implementation of helicopter money.
A public digital euro would limit the ability of banks to create money through credit and thus reduces the likeliness of credit-fueled crisis.
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what they say about public digital currency
“Central banks should issue their own digital currencies to replace a crisis-prone banking system.”
“I believe we should consider the possibility to issue digital currency”
“A digital currency would remove the need for complex banking regulation”
With the impending ‘death of cash’ and the rise of digital currencies (such as Bitcoin), there are strong arguments for central banks to start issuing “digital cash” – an electronic version of notes and coins (also known as a central bank digital currency). But this raises a number of questions: how would central banks get new digital cash into the economy, and how would the public use it? What would the advantages be? And would there be any impact – positive or negative – on financial stability?