How powerful is the change that the digital euro will soon bring?

Written

28.08.2022

Author

Paula Landes

Have you heard of the digital Euro? As Cryptocurrencies, BitCoin and Blockchain have been buzzing around the fin-bubble for years, digital currencies and assets should have reached the mainstream. But when you search for “invest in crypto” Google instantly suggests: “Is crypto a good investment?” “How do I invest in Crypto” and “Which cryptocurrency is best to invest for beginners?”.

There might still be some ground to cover before Crypto and digital assets become mainstream. Yet – the digital Euro is on the horizon– but what exactly is it and how does it differ from earlier digital assets? Unlike Bitcoin & Co. which have an outlaw image of anonymous payments, blackmail and dark web, the digital Euro sounds like a safe bet – but on what terms and conditions?

Rethinking money?

The digital Euro is a complex idea – for a simple task: adding a complementary digital central bank currency to the current cash and commercial bank money. It could make digital payments easier, faster, more transparent and even cheaper, while at the same time offering a uniting factor across Europe and maybe even the world. Use cases range from the regular shopping trip to the supermarket to retail solutions on a broader scale. Here reduced fees, better availability regardless of bank office hours and a wide acceptance will be a big benefit for international trade.

What politicans say

When one listens to the top bubble of European finance, two things seem to be certain – the digital Euro will come and it’s the most important project right now.

For Madame Christine Lagarde, president of the European Central Bank, all existing Cryptocurrencies are highly speculative and risky, and she would never invest in them – as she said in this fun format. She was also promoting the arrival of the digital Euro and – of course – its backing by the ECB.

Mairead McGuinness, European Commissioner for Financial Stability, Financial Services and the Capital Markets Union, the digital Euro is if anything, a really difficult thing to process, as she said in her keynote at digifin22 in Berlin in June. At the same event, an Executive Board of the Deutsche Bundesbank, Prof. Joachim Wuermeling, stated the most important project right now, is the digital Euro.

What the community says

As the politicians seem to be aligned, we have asked some of our community members about their thoughts and ideas – about what the future of crypto may hold, as well as of the digital Euro and its potential.

For Manuel Lorenz, Partner at BakerMcKenzie, the biggest potential for crypto and digital currencies lies in closed settings, such as games with in-game currencies or machine-to-machine payments in pay-per-use setups.

Here smart contracts can open up new ways of value generation as long as they are bound to stablecoins.

For the digital Euro he sees three major obstacles:

the 3000€ per person at a time limit,
the issuing through banks and
the fact, that its not programmable for micropayments, smart contracts or tokenization.

This way, it will stay just a euro used mostly on the web, where it could have been a chance for new opportunities.

Alexandra Kinywamaghana, a Project Coordinator at the Frankfurt School of Finance & Management working on the safeFBDC use case on monetary policy decisions, sees the digital euro as inevitable and appealing to a tech-savvy part of the population. The danger is that this could exclude, e.g., senior citizens. For this reason, she thinks, some cash will remain in circulation and phase out if any will be gradual.

In the long run, financial stability, regulatory certainty (keeping abreast with innovations), and “German Angst” will dictate the direction of digital applications in Germany. It is a learning process, and we can learn a lot from countries like China (in the trial phase), Nigeria, and the Bahamas that have launched their CBDCs—the dos and don´ts.

Piers Marais, Product Director at Currencycloud sees the 12,000 plus cryptocurrencies that there are in the world purely as an asset class – with several problems. These range from the lack of acceptance when buying goods, to a terrible user experience when dealing with coins, to a lack of trust in, and an understanding of, the technology. He admits that the initial idea of Bitcoin, that it wanted to make international transactions faster and cheaper and unite the world with a new term of value, were good.

But for the execution of a truly accepted digital currency, it needs institutions like central banks, which most people trust to keep their money safe. The advantages of a digital Euro or any CBDC for businesses are easier, faster, and cheaper international transactions – that can happen regardless of office hours and across time zones. For consumers, CBDCs are an addition to the existing cash and fiat denominations – that will be actually accepted in shops – online and offline.

Conclusion

Could we be living in a fully digitized and cash-free world anytime soon?

The pandemic already accelerated the speed of digitization – but in most developed countries customs and structures are hard to change and things take time. Whereas emerging economies could easily leapfrog to unprecedented levels of payment technology. The timeline for the digital Euro suggests its arrival by the end of 2026 – given that bureaucracies and international cooperation works and all trials go well. So we have time to get ready and there is room for innovation! How will you adapt? And what will your bank offer?

Let us know, what you think!