As the world moves towards a completely cashless experience, governments and banks globally are finding faster and more secure ways to enable digital payments with the help of technology. Countries like China and the US have been exploring digital versions of their fiat currencies (CBDCs) for effortless payments.
Europe’s central bank took a step further on the path of issuing their own version of CBDC, digital Euro. They issued a comprehensive report outlining the key advantages of issuing a digital Euro and what are the legal and technical requirements to make that happen.
CBDCs have gained immense popularity owing to their capabilities of offering affordable, fast and secure payments, without needing an intermediary. As central banks of various countries race to launch their own digital currencies, we try to explore the potential of such a new way of payment.
Potential advantages of a Digital Euro
Let’s understand how the digital Euro would change the way customers make payments in Europe as highlighted in the report.
Digitalization of the European economy
Digital Euro can boost the development of innovative payment solutions for businesses in all industries. The cost of payments could be reduced, making their payment processes smooth and supportive of new business models. For the general public, digital Euro would address the need for convenience, speed, cost and efficiency. It would enable digitalization of the finance sector where all transactions would be done through digital channels, making it easier to handle their money and transactions.
Fulfilling the rising demand of the people
The speed of innovation is rising, and people show an increasing preference for digital payments. Digital Euro can fulfil the changing requirements of the people. It can significantly improve the retail payment landscape by offering an affordable and convenient mode of payment. It can also guarantee better speed and security of payments for young Europeans as they prefer digital payments over cash payments.
Better stability over privately-owned digital currencies
CBDCs like digital Euro can provide better price stability over privately-owned digital currencies or cryptocurrencies. As the central bank of Europe will issue the digital currency, citizens can enjoy a riskless payment experience while reaping the flexibility and convenience of a digital coin. It can also lower the barrier of newer organizations and boost healthy competition in the payment sector.
Mitigate damages by pandemics and natural disasters
As COVID-19 hit the world, there was a steep decline in cash payments as people avoided to touch notes which might be the carrier of the virus and other harmful bacteria. Even the World Health Organization (WHO) released a notification regarding the same issue. Many banks globally kept banknotes in lockers for many hours before using them to avoid the danger. Digital Euro can enable smooth payments even in such a scenario where a natural disaster or a pandemic could hinder the provision of payment services.
The international role of Euro
Eurosystem stressed that a strong international role of the Euro is a crucial factor in reinforcing the autonomy of the European economy. Digital Euro could support the international role by stimulating the demand of Euro among foreign investors. It could also strengthen the cross-currency payment system by filling up the gaps and correct its inefficiencies, notably of remittance payments. Issuance of digital Euro can also lead to improved interoperability among payments systems operating in different countries.
Europe’s central bank has not issued any date for the launch of digital Euro, however, it seems they are prepared to launch when the need arises. This report marks the beginning of the discussion of the operational and legislative framework that would be required to introduce a digital Euro.