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- European countries are no exception as their central bank ponders over merits of Digital Euro
- Reports warn that such a move would be more harmful than good if implemented in a hasty and unsupervised manner
Several countries are forced to take notice of cryptocurrencies that can surreptitiously surpass established banking and FinTech sectors. To counter this phenomenon, central banks worldwide, including Europe, contemplate introducing their native currency’s digital version.
Pilot project in China
China currently leads in the implementation and mass adoption of currency tokens. A pilot project provided Beijing citizens with $30 worth of Central Bank Digital Currency (CBDC). Several other banking systems worldwide, taking examples from China, are seriously pursuing the prospect of digital currencies. The American Federal Bank chairman Jerome Powell also said that the digital dollar issuance was a highly prioritized task.
Double-edged sword
The European Central Bank (ECB) maintained that the new digital euro if introduced, would coexist harmoniously with the current cash systems. This would be accessible to all European citizens. Vice-President Luis de Guindos also stated that digital euros are more of a necessity than an option at this stage. However, crypto’s popularity may lead several bankers funnelling cash into the token. Reducing their monetary deposits, leading to banks facing reduced incomes. There is also some alarm stemming from the fact that European banks already have bad debts to the tune of $1.7 trillion. Moreover, it could also lead to the ECB’s monopoly on the FinTech sector leading to several banks losing out on their liquidity.
Safeguards to allay fears
If designed for cryptos to be used only for domestic and international transactions but not for investments, a system could be a good safeguard. Moreover, limiting people’s digital Euros holdings could be a protection. Yet it may not be viable. As capping it at $3,600 would still lead to $1.2 trillion moving from banks to the ECB. Another possibility is to set forfeits such as a negative interest rate on digital accounts with over $3,600.
Not to be completely unfair to the Euro, it also has several positives, such as the curbing of money-laundering, crime and tax-evasions. Nonetheless, the ECB will take a call on this matter in early April, and until then, all notions are speculative in nature.
With a background in journalism, Ritika Sharma has worked with many reputed media firms focusing on general news such as politics and crime. She joined The Coin Republic as a reporter for crypto, and found a great passion for cryptocurrency, Web3, NFTs and other digital assets. She spends a lot of time researching and delving deeper into these concepts around the clock, and is a strong advocate for women in STEM.
