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- The European Central Bank has issued a new warning that allowing letter “foreign IT titans” to dominate digital currency would be a mistake
- In the future years, central banks are expected to launch their own digital currencies
- Anonymity is one concern that might limit its worldwide adoption
The European Central Bank has warned the EU’s 27 member states that failure to produce a digital currency might undermine the euro and lead to the EU losing control of its monetary policy. The International Role of the Euro, warns members about the risks to stability that may occur if a central bank does not issue a digital currency.A study on the digital euro was recently released by the European Central Bank (ECB). The paper explains the scenarios in which a digital euro would be adopted, as well as the concepts and conditions that a digital euro must meet.
Threat to Euro
While emphasizing that a currency’s global appeal is largely determined by fundamental economic forces that digitalization is unlikely to alter, the report focused on the danger that private digital currencies issued by foreign tech giants Facebook’s Libra/Diem project was not specifically mentioned but was certainly present in spirit could come to dominate both domestic and cross-border transactions. The research was released only days after US Federal Reserve Governor Lael Brainard warned that the extensive use of private funds for consumer payments might split elements of the US payment system in ways that create difficulties and raise prices for families and businesses.
It should be emphasized that the Euro’s worldwide acceptance is fairly strong as a result of the country’s core economic dynamics. However, owing to the issuance of private cryptocurrency assets supplied by foreign technological giants such as Facebook’s Libra/Diem project and others, the currency’s recognition may be jeopardized. Such a threat is likely to overshadow both the national and worldwide prestige of the Euro, necessitating immediate action to safeguard the currency.
Adverse impacts if CDBC doesn’t issue digital currencies on time
According to the ECB research, a private digital currency might threaten the financial system’s stability. Individuals and merchants alike would be susceptible to a small number of dominant suppliers with great market power, according to ECB President Christine Lagarde’s assessment. Central banks’ capacity to carry out their monetary policy mission and serve as lenders of last resort would be jeopardized. In a digital environment, issuing a CBDC would assist to protect the autonomy of local payment systems as well as the international usage of a currency.
The Central Bank’s capacity to comply with its budgetary policies while acting as a lender of loans to its members may be harmed if digital currencies are not issued. The paper concludes that the issuance of the Central Bank Digital Money will aid in the preservation of national payment systems’ autonomy as well as the worldwide usage of the currency in the digital world.
The anonymity or trackability that a digital euro affords users is one concern that might limit its worldwide adoption and influence, according to the paper. It stated, predictably, that trade-offs between preserving privacy and public safety would be required. Limiting the amount of a digital euro that non-citizens might use, either in a flat sum or overtime, was one of the recommendations. However, this might restrict the use of a European central bank’s digital currency as a way of conducting cross-border payments, as well as its worldwide appeal.
China is well ahead of any other major economic power in producing a central bank digital currency, indicating that trackability would be integrated into a digital yuan.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
