Euro digital: slowly but surely

Why are you talking about the digital euro today? Because the project continues to move forward. Yesterday, the head of the European Central Bank (ECB), Christine Lagarde, confirmed several important points about the future "e-euro" at a conference in Paris, not least the timetable. "We are hoping for a launch in 2026 or 2027", she explained in a video conference.

What is the digital euro?

When you hear Christine Lagarde talk about a "digital" euro, you immediately ask yourself, "why"? Don't we use digital euros every day when we pay with our bankcards and smartphones? Yes, of course, except that these "euros" are nothing more than digital writing games between the banks and the payment players (Visa, Mastercard, etc.).

When you pay with your card, you never really use a euro, a dollar or any other currency. Notes and coins don't move from the vaults.

Here, with the ECB's digital euro, the idea would be to create the equivalent of cash in a... dematerialised form 💡.

What will this digital euro look like?

After a year of research, the major architectural choices for the future digital euro have not yet all been decided: while it now seems clear that the digital euro will be centralised, i.e. issued by the ECB (and therefore not decentralised), the underlying technology is not yet known.

Will it use a blockchain or not? The only certainty on this point is that it will circulate in wallets (digital wallets), independently of other means of payment.

Another point raises questions, and even sparked the beginnings of a controversy last week: the presence of Amazon. The American giant is one of the ECB's five partners for the test phase. But will it be directly involved? "They will only be testing the interface, Amazon will be helping to see how a digital euro could be used on a daily basis," explains Xavier Layvaissière, a researcher specialising in cryptocurrencies and author of a report on central bank digital currencies.

What prompted the ECB to move forward?

Essentially two things.

The decline in the use of cash: although coins and banknotes are still popular, particularly in some European countries such as Germany and Austria, mainly for historical reasons, their use continues to decline. According to the latest figures from the ECB - which admittedly date back to 2020 - the use of cash in shops has fallen below 60%, and updated figures should show an even greater decline.Crypto-currencies and the Libra project: "With the rise of crypto-currencies and Facebook's Currency 2.0 currency project by Facebook (now Meta), governments have realised that they could lose control of the currency to private conglomerates", explains economics professor Joëlle Toledano, a member of the French National Digital Council. The creation of a central bank digital currency would therefore make it possible to compete with crypto-currencies for digital uses.

Why is the digital euro a sensitive issue?

The digital euro will not just "dematerialise" money. It could have a considerable impact on individuals AND commercial banks.

For individuals: the use of a digital currency raises serious questions in terms of traceability and security. How can we ensure that no data is exploited? For commercial banks: the arrival of a central bank digital currency could bypass the banks, since some of Europe's money would be stored in wallets directly linked to the ECB. But Christine Lagarde has made it clear that BNP Paribas and the other banks will be "associated" with the project. How will they be involved? The test phase, due to end in 2023, will determine that.

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