Introducing a digital euro
Upgrading money to the digital age
Just as the internet revolutionised the way we communicate, technology is radically challenging the way money might work in the future. By introducing a public digital euro, the EU could provide a safer and more efficient alternative to money issued by private banks and cryptocurrencies.
Besides hoarding cash under a mattress, right now people have little choice but to use private banks to hold their savings, receive their salaries and make daily payments. Few people are aware that the money in their bank accounts exists only as virtual money, and is legally the property of their bank. The money at the bank actually constitutes a debt from the bank towards its customers.
By contrast, physical cash (banknotes and coins) is the only form of money that is actually created by national central banks and is not tied to a specific debt owed by a bank to individuals. When the central bank issues cash, this also creates income for governments – known as seigniorage. In addition, cash is the only payment system that is entirely free and accessible to everyone, even for those who don’t have a bank account.
Why does the future of cash matter?
Physical cash is currently the only way to transfer money without any cost and loss of privacy. Without the ability to use cash, there is no way to opt out from the current banking system.
Coins and banknotes are a valuable public utility service, however it is being threatened by the growing use of contactless cards, mobile apps and cryptocurrencies.
Today’s digital technology is everywhere and enables us to make user-friendly payments. As more and more people stop using coins and notes, there is a risk that cash will soon disappear.
With the end of cash, the entire money and payment system would be left in the hands of a few increasingly powerful private financial companies. These companies would gain even more power to monitor what we pay for and with whom we exchange.
Money is a public good and must remain so. Instead of letting technology benefit to big corporations, we must instead use technology to redesign our monetary system so it works in the public interest.
Introducing a digital euro
Positive Money Europe advocates for the introduction of a digital euro in the Eurozone. Under such a system, the ECB would allow citizens to store their money at the central bank and make all sorts of basic payments and transactions with it. In essence, a digital euro would ensure that the EU continues to provide money as a public utility service instead of letting private companies run our money system.
Digital euro should have the same properties as cash (free of charge and non-debt based), but in 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. In this way, a digital euro 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.
A public digital euro 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 to manage their money and banks would receive fewer implicit public subsidies, for instance in the form of deposit guarantees and bailouts. A digital euro would force the banking system to be more ethically responsible and competitive.
As a public digital euro would provide a safer and more stable form of value than private shadow money, it has the potential to increase financial stability. Moreover, if many people have a digital euro wallet at the central bank, it would provide more direct tools to the ECB to implement its monetary policy.
The ECB’s conservative approach
Despite this big potential, whether the digital euro achieves highly depends on technical details which are going to be defined in the coming months. However so far the ECB’s plans to introduce a digital euro are disappointingly unattractive, and overly protective of the vested interests of commercial banks.
The ECB is considering introducing a cap on the amount of digital euros one can hold, or levying a tax above a certain amount of digital euro holdings. Furthermore, there are doubts on the ECB’s commitment to respect citizens’ right to privacy, as they want to prioritize the compliance with anti-money laundering regulation and thus ensure governments can trace payments.
Overall, it seems the ECB wants to introduce a digital euro in a way that does not challenge the current privileges of the banking sector.
Last but not least, rather than inviting a broad range of stakeholders and openly exploring the potential of a public digital euro, the ECB has so far mainly sought advice from private finance professionals.
It is crucial that we get democracy involved in this process. As Positive Money Europe, we are joining forces with other civil society organisations to open up the dialogue on the digital euro and to advocate for an attractive, privacy-friendly, public digital currency that improves the functioning of the financial system.
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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