Belgium (Brussels Morning Newspaper), In the year 2020, the European Commission (EC) announced plans to launch a digital version of the euro, marking a significant move towards a digitized financial infrastructure in the European Union (EU). The goal is to bolster the European Central Bank’s (ECB) authority over payments within the eurozone in response to the escalating shift towards digital transactions.
The EC’s initiative serves as a strategic counter to the growing influence of commercial entities in the payment landscape and the potential risks associated with digital currencies offered by social media companies. However, this ambitious endeavor has provoked diverse opinions, raising critical questions about the balance between financial sovereignty and citizen privacy.
Central banks have traditionally been responsible for the production of physical currency. However, with the digital revolution, the landscape has changed dramatically. Commercial banks currently issue digital euros used in electronic transactions. This setup, where “commercial euros” symbolize claims held by individuals and businesses against their respective banks, poses systemic risks, especially during financial crises or cyberattacks.
As envisioned by the EC, a public digital euro would provide the safety of a physical coin directly held by its owner while avoiding the risks associated with bank failures.
A glance at the payment landscape in countries like Sweden reveals the urgency behind such a digital transformation. Cash payments, which accounted for 39 percent of all transactions in 2010, have fallen to a mere 9 percent in 2020, illustrating the heightened reliance on commercial banks.
When these banks face crises, governments often use taxpayers’ money to ensure their survival, as evidenced during the 2008 financial crisis and the downfall of Credit Suisse. The digital euro could provide an alternative, safe payment option, reducing reliance on commercial entities.
The EC’s proposal, however, is far from being accepted without debate. The decision-making process, already underway, promises to be contentious, requiring majority approval from the European Parliament and a qualified majority from European governments.
The proposal has sparked discussions about the potential implications of such a transformation, with decisions expected after the 2024 European elections and implementation targeted for 2027 or later.
Amidst these discussions, the EC also seeks to counter the risks posed by digital currencies from social media companies and cryptocurrencies, which could play a significant role in international payments without adequate central bank alternatives. The digital euro, therefore, aims to adapt to technological advancements while reinforcing the euro’s role as a unified currency throughout the eurozone.
The proposed digital euro, issued by the ECB, would coexist with physical cash and commercial bank money. The Commission envisions its integration into existing banking applications, with offline variants for secure access during internet or banking system failures. Moreover, it targets financial inclusivity, enabling individuals without bank accounts, such as undocumented immigrants, to participate in the financial system through prepaid cards, akin to prepaid phone cards.
However, to avoid undermining commercial banks, the EC proposes restrictions, such as a maximum transfer limit of €3,000 per person into the digital euro, with no interest offered on these balances. These measures aim to strike a balance between individual financial security and the stability of the broader banking system.
Yet, as this shift towards digital currency gains momentum, critics raise significant concerns about privacy. Unlike cash transactions, digital money leaves a trail, potentially enabling extensive government surveillance. Concerns also loom over the possibility of “programmable money,” with governments dictating how welfare benefits, for example, can be spent. To mitigate these fears, the EC proposes to legislate that the digital currency must remain “neutral” and universally usable, but whether this assuages privacy concerns remains to be seen.
The EC’s initiative to launch a digital euro represents a pivotal step towards a digitized financial system, promising increased financial sovereignty and resilience. However, achieving this goal without compromising citizen privacy is a delicate balancing act that must be navigated carefully in the digital age.
The success of this endeavor depends on the EC’s ability to balance competing interests while ensuring the safety and inclusivity of the new financial landscape. The road to the digital euro will undoubtedly be a critical journey to watch.
Opinions expressed in the op-ed section are solely those of the individual author and do not represent the official stance of our newspaper. We believe in providing a platform for a wide range of voices and perspectives, even those that may challenge or differ from our own. As always, we remain committed to providing our readers with high-quality, fair, and balanced journalism. Thank you for your continued support.Sincerely, The Brussels Morning Team
