The European Central Bank (ECB) is working on developing a digital version of the euro, which would be a central bank digital currency (CBDC). A CBDC is a digital form of money issued by a central bank, which has the same legal status and value as the physical currency. A CBDC is different from a cryptocurrency, which is a decentralized and unregulated digital asset that is not backed by any authority or asset. Cryptocurrencies are often volatile, risky and subject to fraud and cyberattacks. CBDCs are designed to be stable, safe and reliable, and to follow the rules and regulations of the issuing country.
In a recent interview, the president of the European Central Bank (ECB), Christine Lagarde, revealed some details about the planned digital euro, a central bank digital currency (CBDC) that would complement the existing euro. She said that the digital euro would not offer the same level of privacy as cash, but it would be more secure and convenient than other forms of digital payments.
The ECB launched a two-year investigation phase in July 2021 to explore the design, distribution and operation of a digital euro. The investigation phase will involve consultations with stakeholders, experiments with possible technical solutions, and assessments of the benefits and risks of introducing a digital euro. The investigation phase will also address the legal, ethical and social implications of a digital euro, as well as its potential impact on monetary policy, financial stability and the banking sector.
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However, the ECB’s president, Christine Lagarde, has recently stated that the digital euro would not offer the same level of privacy as cash. In an interview with Bloomberg, she said that the digital euro would have to comply with anti-money laundering and counter-terrorism financing regulations, which would require some degree of traceability and verification of transactions.
She also said that the digital euro would not replace cash, but rather complement it, as some people may prefer to use physical money for various reasons. She added that the ECB would ensure that the digital euro would be accessible, secure and efficient, and that it would protect the sovereignty of the euro area.
The ECB is expected to decide whether to launch a formal project to develop the digital euro by mid-2024, after conducting a public consultation and an in-depth analysis of the potential benefits and risks of a CBDC. The ECB estimates that it would take about two years to complete the design and testing phase, and another two years to implement the digital euro across the euro area.
A digital euro would be part of the broader efforts by the ECB and the European Commission to foster innovation and competitiveness in the European payments market, and to support the digital transformation of the European economy. A digital euro would also be a response to the increasing demand for digital payment solutions, especially in light of the COVID-19 pandemic, and to the emergence of new forms of private digital currencies, such as stablecoins and cryptocurrencies.
The ECB is currently conducting a public consultation on the design and features of the digital euro, which will end on January 12, 2024. After that, it will decide whether to launch a formal project to develop and test the digital euro, which could take several years. Lagarde said that the ECB is working closely with other central banks and international organizations to ensure that the digital euro is compatible and interoperable with other CBDCs and payment systems around the world.