Digitalization is the way forward, and the European Central Bank has found the key: a digital euro. The planned digital euro, in development since 2021, will help accelerate the region’s shift towards more secure and convenient online payments. Like cash, the ECB considers its digital currency to be widely accessible, risk-free and free to use. However, the road to the digitalization of the euro is paved with politics and controversies.
Political reports that some European Union governments are reportedly raising concerns about the ECB’s regulation of the digital euro. In its report, Politico said there is an ongoing battle between several EU governments, such as Germany and France, and the ECB over the regulatory framework of the planned currency, particularly over the amount of digital currency a citizen can hold in a wallet. by the central bank. Both sides fear this could destabilize the region’s banking system if the regulatory framework is not addressed.
Digital euro: so what is the limit?
At the heart of the digital euro debates is the amount consumers can store in wallets backed by the central bank. Some technocrats and politicians worry that if a higher limit is imposed, consumers could withdraw large sums of money from banks during a crisis, disrupting the stability of the banking system.
Others question the need for a hat on the wallet; they say such a move could violate personal financial freedom and give rise to a ‘Big Brother’ scenario.
In short, the current debates surrounding the planned digital euro boil down to one crucial issue: where does the ECB draw the line? Some observers and analysts say there are many EU countries are now responding to the ECB’s extensive control over the financial system. In the words of one diplomat, the current debate is simply about ‘power’.
The ECB’s commitment to the digital euro comes at a cost
The idea of a national digital currency became famous in 2019 when Facebook failed to launch Libra, a global cryptocurrency. The failed project scared the world and inspired more than a hundred central banks to return to the drawing board.
Although many projects fell through, the ECB’s plan is to… digital euro pushed through. As part of the ECB’s plan, the digital euro could become an efficient alternative to traditional payment systems. They can reduce the region’s dependence on non-EU and US payment systems.
Image: Positive Money
However, the ECB’s laser-focused commitment to a digital euro comes at a cost. Some EU member states were shocked by the central bank’s plans and actions, which they described as ‘technocratic’.
As such, many EU member states are taking steps to bring the ECB to the discussion table. For example, Brussels uses political pressure to influence the design of the currency.
Different views
Under the current draft regulations, the ECB can decide how many digital funds users can store in their wallets. Other officials also confirm that only the central bank has the power to adjust the money supply in the region.
However, at least nine EU member states have different ideas. According to a group that includes Germany, the Netherlands and France, they argued that Frankfurt (the ECB’s headquarters) should not limit the decision-making powers of other countries.
Diplomats invoked political supremacy and declared that the planned digital euro is not just a monetary instrument, but a financial service that affects every European.
Featured image from CNBC, chart from TradingView