Paul Mackay - Financial Expert
A lot of doomsday reports about GBDCs are circulating on the internet and social media. Therefore, it’s about time to lift the veil on the subject and put things in the right context.
Don’t panic. Cash money will never be abolished nor replaced. The digital euro is merely a complement to cash in order to to meet changing consumer demand for digital, fast and secure payments. A digital euro is Central Bank money that will be guaranteed by the ECB and would be custom-designed for citizens and businesses : risk-free with particular attention to privacy laws. The Eurosystem is experimenting with different approaches and technologies. The digital euro would be all one-to-one exchangeable for cash and vice versa. It is just another way to pay with our common currency within Europe.
Until the late 1980s, the monetary system worldwide consisted of 2 layers : cash transactions in cash money and deposits in the bank that moved from one account to another via banktransfers. From the 1990s onwards, electronic payments via debit and credit cards started to become increasingly common, which established a third layer. Our monetary system has been highly digitised for many years. More and more people buy online and also pay in shops using a debit or credit card. The new system that is in the pipeline will not change this particularly much, but it will make it easier to use and more secure. A digital euro may also offer advanced functionalities such as automatic payment functions or the use of some form of digital identity. Without obligation. If you do not wish to use this tool, you can still choose another payment modality.
All major central banks around the world are exploring the possibility of issuing a GBDC. Within the EU, the issue is still in the early stages of research. In Asia and Russia, they are already much further along. Europe, for obvious reasons, does not wish to lag behind and is therefore also investigating the possibility and measuring the impact on economies where individual autonomy, security and sovereignty play a leading role. The introduction of a digital euro - as a complementary payment system - is by no means for tomorrow nor the day after tomorrow. Apart from the fact that the monetary system is founded on financial laws and thus a lot of new legislation has to be created before there is any talk of introducing this complementary payment system, all member states must first agree on its possible design. Once a majority agreement is reached, extensive testing must be carried out to see whether it can meet users' needs. The first research phase will be completed in October 2023.Then work will be done to develop integrated services with possible live experiments whose deadline is set at 3 years before a decision will be taken.
The digital euro will not serve as a form of financial investment and therefore will not earn interest to those who build up a piggy bank of digital euros. There are other monetary instruments for that. The digital euro is only intended for daily retail payments that can never be lower than the fee for and by cash. A digital euro allows people to make payments without their data being shared with third parties, except for what is necessary to prevent and combat illegal activities ( see the Money Laundering Act ). If payments are to remain private, several types of data need to be protected : the identity of the user, information about individual payments (e.g. the amount) plus the metadata associated with the transaction (e.g. the IP address of the device used for the transaction). Users may have to identify themselves when first using services in digital euros, but their privacy can still be ensured at different levels when operating payments.
A high level of privacy protection can also be supported in other ways. For instance, user identity could be kept separate from payment details. In case of suspected suspicious activity, only a financial intelligence unit (FIU), within a clearly defined legal framework, could request this information to identify the payer and payee. The ECB strives to always adhere to the highest possible standards when it comes to the protection of personal data.
Anyone who, after reading the above information, still thinks that cash will be replaced by GBDCs in view of total control of citizens or their money, think a little bit deeper. There are more than 100 currencies in the world. A lot of countries are not joining the GBDC race. In many of those countries, cash is still the primary means of payment. For that matter also in the EU and even more so in the US where a strong underground economy has existed since time immemorial and will always exist. The world population will never accept the formal abolition of cash in coins and banknotes no matter how many laws will be enacted. There are hundreds of billions of cash in circulation in all currencies. They will continue to use cash as sole means of payment. Central banks know this all too well. Hence, they do not venture into any such concept and only envisage the introduction of GBDCs as an additional means of payment for all the reasons cited above. We cannot object to an additional means of payment, right ? Therefore, it is totally useless to waste time and energy on inventing and proclaiming all kinds of doomsday scenarios this neither remotely nor closely match reality.
Want to know more about the topic? Then read the information in the following links or search further yourself on the keyword " digital euro ":
A Digital Euro: Challenges and Opportunities - Related Presentations | European Economic and Social Committee (europa.eu)
'Road to the digital decade': the EU's plan to create a digital Europe by 2030 - Consilium