Eurozone’s apex regulatory bank, ECB, considers the possible expansion and the relevance of the Euro beyond the Eurozone through its proposed digital Euro. According to a recent Reuters report, “creating a digital euro could boost the single currency’s international status by making it easier to use for paying or saving”.
The EU was created in 1993 to advance the economic interest of the member states within Europe and officially adopts the Euro as its single currency. Since Euro’s creation, the body, through its issuing institution, has been pushing for the relevance of the Euro beyond the Eurozone and possibly a worthy rival of the dollar. However, due to the coronavirus pandemic, the regional body’s economic interest’ got hardly beaten in terms of international trading and, by extension, the cross-border use of the Euro.
But with a renewed interest in floating a digital Euro or its own version of the CBDC, the regional bloc hopes to increase the Euro’s appeal among transacting parties. According to the ECB,
“Safety, low transaction costs, and bundling effects could ease international adoption of a currency,”
The ECB, which echoed the sentiment of the rise of “artificial currencies” being pushed by foreign tech giants, said these could threaten the Euro’s role even within its zone talk more internationally. ECB’s economists Massimo Ferrari and Arnaud Mehl shared these concerns without explicitly naming the “foreign tech giants”. However, by deduction, one could easily rope in Facebook’s stablecoin project “Diem” as one of the “artificial currencies” ECB’s economists spoke of.
“One concern could be a situation in which domestic and cross-border payments are dominated by non-domestic providers, including foreign tech giants potentially offering artificial currencies in the future.”
Hence, it didn’t come as any surprise when the Eurozone’s apex bank made a swift move by asking that EU lawmakers veto against private stable projects such as Facebook’s Diem coin.
But targeting a broader role for the Euro would mean exposure to the risks of being used for illegal activities like money laundering and other related crimes. ECB is considering designing digital currency by setting a cap on how much each citizen can own or forcing disclosure.
“Transparency or selective privacy would enable better compliance and know-your-customer checks to be implemented, thereby controlling illicit payment flows, for instance for large transactions.”
Additionally, ECB thinks another benefit of a digital Euro would be to compete with big tech firms for payment products and services and noted that bundling a digital euro with complementary services could be a way to do so
“A CBDC could facilitate the digitalization of information exchanges in payments through e-invoices, e-receipts, e-identity, and e-signature, allowing intermediaries to offer services with higher value-added and technological content at a lower cost.”
ECB states that these measures would “strengthen the reputation and credibility of the digital euro.” At the height of the coronavirus pandemic, the Euro accounted for 22% of all global foreign exchange reserves last year, while the U.S. dollar’s share was 59%.