The Governing Council of the European Central Bank (ECB) has decided to begin the research phase for the digital euro, as reported by the entity in a statement shared this Wednesday.
The emergence of the cryptocurrencies, in the global financial system is driving the world's large central banks to adapt to new developments. This Wednesday, the European Central Bank (ECB) announced that the research phase for the development of a digital euro was approved by the entity's Governing Council.
The ECB had been considering issuing a central bank digital currency, known as CBDC, since last year. Even several of the countries that make up the Eurosystem have been working on different tests and developments to analyze the benefits and implications of launching a digital currency anchored to the euro, based on blockchain, for the euro. Now, after numerous discussions and even a public consultation, the ECB decided to start the research phase to explore the development of its future CBDC currency.
Although the launch of a digital currency for the euro will not take place immediately, and it is estimated that it could take up to 3 or 4 years to arrive, the central bank states that it is preparing for the future, in order to meet demands of its citizens based on the new preferences of society in financial matters.
Paschal Donohoe, President of the Eurogroup, congratulated the ECB Governing Council on this important step and expressed his full support for the development of the digital euro project.
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Central banks and CBDCs
The European Central Bank has been analyzing the possibility of issuing a digital euro for about 9 months. The entity has carried out numerous analyzes and has gathered the opinions of analysts and experts, as well as society in general, to understand the current preferences of both citizens and merchants and intermediaries within the financial sector. The reality is that the current rise of cryptocurrencies, and the proliferation of digital assets created by centralized companies, prompted central banks to create CBDCs, as a way of not losing control over the financial system and its users.
Christine Lagarde, president of the ECB, said via Twitter that the central bank's main job now is “ensure that in the digital age citizens and businesses continue to have access to the safest form of money”, which in his opinion is the central bank's digital money.
Although the bank clarifies that with this new phase it will begin to study the design and form of distribution that the digital euro will have, to prepare for its possible issuance in the future, many are already speculating about the impact that its arrival would have on the euro economy.
CBDC, privacy and security
CBDCs are part of the strategies of central banks to not lose the monopoly and control they exercise over the economy, and which clearly fills them with power. A future with a digital euro (which would not completely replace fiat money) would make payment systems faster and more efficient, although it creates many doubts and uncertainties regarding privacy, which is one of the most debated topics currently.
The use of a digital euro would guarantee the ECB absolute control over the transactions and financial movements carried out by its users with it; something they don't have with fiat money. In addition, users of the digital currency will have to undergo identity registrations. Although the bank states that it will evaluate different options to offer a design that protects the privacy of users, regulators have clarified that privacy is not the same as anonymity, making a digital euro unfeasible where the identity of those who access it is not known. use it.
Risks of hacking and cyberattacks
For some experts, the management of large personal and financial databases currently requires a high degree of security and implies great responsibility. Cyberattacks through malware and ransomware have become very popular in recent months, so the centralization of such sensitive information is not recommended.
In January of this year, the renowned blockchain forensics firm, Chainalysis, warned the United States Department of the Treasury and the Financial Crimes Enforcement Office (FinCEN) about the risks of being hacked and subject to frequent cyberattacks by centralizing the financial data of its citizens. Chainalysis sent a letter to the regulator warning about said risks.
The ECB has said that the issuance of a digital euro must be able to meet the needs of Europeans; but, at the same time, help prevent illicit activities and avoid any undesirable impact on the financial stability and monetary policy of the region. Therefore, the ECB is committed to seeking a balance between the needs of its citizens and those of the central public entity.
At least 3 years for the digital euro
The research phase for the digital euro that the European Central Bank has just approved will last 24 months, Lagarde indicated. During this stage, the design and development of the CBDC currency will be strengthened by the work carried out by the entity's experts and by the work being carried out by other national central banks that are members of the Eurosystem. After the research phase, the design and development of the digital euro will take place, so the CBDC could take between 3 and 4 years to become a reality.
Meanwhile, other central banks around the world, such as China, Sweden, the United Kingdom and South Korea, are making significant progress in the development of their CBDC digital currencies; to the point that China is less than 8 months away from launching its digital yuan.
The United States, the world's leading power, is also evaluating the development of a digital currency for the dollar. Jerome Powell, president of the Federal Reserve Bank of the United States (FED) said that will present a report on the development of CBDCs next September. In said report, Powell will also address the role of cryptocurrencies and stablecoins in the economy.
Continue reading: CBDCs: the money of the next era and a potential threat to banks
