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Digital euro may take effect in about four years: European Central Bank

BRUSSELS: The European Central Bank (ECB) will shortly make a decision on the introduction of a Central Bank Digital Currency (CBDC) across the European Union. ECB President Christine Lagarde said the digital euro could be completed within four years.

Discussions on what the European Central Bank’s digital euro should look like are progressing at various levels. According to Christine Lagarde, the digital euro would most certainly have the status of legal tender, which means it would have to be recognised when paying for coffee or groceries.

Ms. Lagarde says the cryptocurrencies are gaining popularity and have the potential to improve international trade and be used as payment, but they are unlikely to be accepted equally. Also, if the euro disappears from the Eurozone, the ECB will not be able to conduct monetary policy. This is where the digital euro plays its part.

Simple concept, but complex design

The head of the ECB says that although the underlying theory of digital currency is simple, its design is more complex. There are two categories of digital euro: wholesale, which is only available to financial institutions, and general-purpose, which is available to all consumers.

The ECB also envisages making digital euro available free of charge so that offline payments can be used by the most vulnerable groups. Wholesale digital currency cannot meet these requirements. That’s where the potential for digital currency for the general-purpose lies. These can be distributed either through financial institutions or directly through the national central banks.

Interest on digital euro

However, there are some concerns over whether it will be able to impose interest on digital euro notes. Some academics argue that the ECB’s digital euro represents cash and cannot be used to generate interest. But in a recent judgement, the EU’s Court of Justice connected monetary policy to the power to issue legal tender. As a result, it is more likely that the digital euro accounts will be able to carry interest rates.

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