The European Central Bank (ECB) has started working on a proposed digital euro. While the ECB is not in a hurry to launch a central bank digital currency (CBDC), other central banks have begun experimenting and testing their sovereign digital currencies.
ECB Working on Digital Euro Project
In a blog post on Wednesday (July 14, 2021), the ECB’s Governing Council revealed that it will begin the investigation phase of the digital euro. The announcement follows a report published back in October 2020 on the proposed CBDC project.
Speaking on the launch of the digital euro project, Christine Lagarde, President of the ECB, said:
It has been nine months since we published our report on a digital euro. In that time, we have carried out further analysis, sought input from citizens and professionals, and conducted some experiments, with encouraging results. All of this has led us to decide to move up a gear and start the digital euro project.
Our work aims to ensure that in the digital age citizens and firms continue to have access to the safest form of money, central bank money.
The ECB President has maintained a bullish stance on the digital euro, stating back in December 2020 that a well-designed European CBDC would ensure smooth integration between the private sector and payment industry. Lagarde also warned that private stablecoins when used on a large scale, could threaten monetary sovereignty and global financial stability.
According to the recent document, the investigation phase will involve engagement with European Parliament, as well as other stakeholders. Furthermore, the ECB noted that the current phase would focus on the design and distribution of the digital euro.
European CBDC a Better Alternative to Stablecoins
Fabio Panetta, an executive board member of the ECB, also spoke about the launch of the investigation phase of the European CBDC project in a separate blog post, stating that the potential digital euro would complement rather than replace cash. Panetta also noted how digitization was changing the way people carried out their everyday activities, facilitated by the COVID-19 pandemic.
According to the ECB board member, while there has been a decline in cash payments, more individuals were adopting online, and digital payment solutions provided by private companies. Although these seem to be efficient, fast, and convenient, Panetta said that digital payment solutions did not provide robust accessibility, were expensive, and came with certain risks such as privacy and safety.
However, the ECB official stated that central banks needed to keep up with the rapid digital transformation.
A digital euro will protect users’ privacy, be less risky, cheap, and ensure financial inclusion. Like Lagarde, Panetta favours ECB’s proposed CBDC project over stablecoins. In June, the executive board member said that the digital euro will better safeguard the privacy of users compared to stablecoins.
Although the ECB has not decided if it would issue a digital euro, the investigation phase of the project is expected to last for two years. Lagarde earlier said that the digital currency launch could happen within four years. According to Panetta:
Our aim is to be ready, at the end of these two years, to start developing a digital euro, which could take around three years. A digital euro will be successful if it adds value for everybody involved – citizens, merchants, and financial intermediaries. We want to design the digital euro to be such a success.
Digital Euro Consumes Less Energy than Bitcoin
Before the investigation phase, the ECB conducted experimentation work on the digital euro for nine months. Part of the results showed that the energy used to run the CBDC transactions were “negligible”, as against bitcoin’s energy consumption.
Indeed, bitcoin’s energy usage has drawn criticisms and been a cause for concern for environmentalists. Back in May, major electric vehicle manufacturer, Tesla, halted bitcoin payments due to environmental concerns. Meanwhile, more stakeholders in the industry are turning to renewable energy for BTC mining activities.
While Europe is not racing to issue a digital euro, more central globally in different countries are progressing with their digital currency efforts. China, which seems to be ahead, has carried out several digital yuan tests across the country. Others involved in CBDC research and experiments include the United Arab Emirates (UAE), Vietnam, Ghana, Japan, South Korea, among others.