DIGITAL CURRENCIES: THE EUROGROUP DISCUSSES THE DIGITAL EURO
Digital currencies were among the issues discussed at the Eurogroup meeting on May 15. The forum provided an opportunity for exchanging opinions on the development of the digital euro project, as well as the global implications of central bank digital currency (CBDC).
In a rapidly digitized economy where electronic payments are becoming the norm, it is essential to maintain central bank money as the primary basis of the payment system. The Digital Euro, which refers to a form of digital currency for everyday transactions, aims to complement the euro while being backed by the European Central Bank. Its introduction promises numerous advantages, including bolstered support for innovation and the digitalization of the EU economy, as well as enhanced financial inclusion through expanded choices, heightened competition, and improved accessibility to digital payments.
The digital euro project was initiated in October 2020 following the publication of a report by the ECB, exploring the possibility of issuing a digital currency. Since July 2021, it has entered an investigative phase, during which key aspects concerning its design and distribution are being actively debated among the primary institutions involved, such as the ECB, the EU Commission, the EU Parliament, and the Eurogroup. By mid-2023, the Commission is expected to present a legislative proposal for the digital euro.
The investigative phase is projected to conclude in October 2023, when the ECB Council will evaluate the project and decide whether to proceed to the implementation phase. Throughout this stage, the development of the digital euro will take place; however, its actual introduction will depend upon the adoption of an enabling legislative framework by the Council and the Parliament.
THE DIGITAL ZLOTY
In Poland, the adoption of the Digital Zloty faces a less favorable environment. In February 2021, Professor Adam Glapiński, the President of the National Bank of Poland, stated that the institution had conducted research on the central bank’s digital currency, yielding unfavorable results.
As stated in the introduction of the NBP’s report, “Central Bank Digital Currency,” the analysis conducted shows no clear benefits from introducing a central bank digital currency in Poland, compared to the identified risks associated with its issuance for the economy, cash circulation, and the financial system. Additionally, the report highlights legal challenges stemming from the Constitution and the Act of 29 August 1997 concerning the issuance of currency in the form of banknotes and coins.
DIGITAL CURRENCIES VS. DIGITAL COINS
Although digital currencies, such as the Digital Euro or the Digital Zloty, may appear to be similar to digital coins like Bitcoin, they are fundamentally different. Notable distinctions exist between these two forms of digital money.
Control: Digital currencies are controlled by a central bank, whereas digital coins are not governed by any government or organization.
Legality: Digital currencies would be recognized as an official form of payment and accepted as a valid means of transaction within a national or supranational jurisdiction. Digital coins are not legal tender and cannot be accepted as a form of payment.
Purpose: The digital euro is designed for everyday transactions, such as purchasing goods, whereas Bitcoin is commonly used for investment purposes or online payments.
Stability: Digital currencies maintain a stable value as they are backed by a central bank, while digital coins’ value can fluctuate significantly over time and lack backing from any authority. This price volatility comes with higher risks.
Privacy: Digital currencies offer certain privacy features while adhering to regulations aimed at preventing illicit activities. For instance, the digital euro would likely incorporate privacy measures while complying with anti-money laundering (AML) and know-your-customer (KYC) requirements. On the other hand, digital coin transactions can be more private, although the underlying technology, such as Bitcoin, remains transparent.
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Article written by Gracia Sumariva Reyes.