18 May 2021 Samantha McLauren
The European Central Bank Decides About Digital Euro Plans Continuation
The European Central Bank will take the decision whether to continue planning the digitalization of the euro this summer.
The bank sits alongside the national banks of several countries, including China, Switzerland, and the United States, in the list of countries actively exploring central bank digital currencies, or CBDCs. However, despite 86% of central banks joining the research and development of such digital currencies, it seems that only China is making some progress.
Furthermore, central banks across the globe experienced immense pressure from Facebook’s Libra (now Diem) stablecoin project, which was supposed to be bound to a basket of currencies. The regulatory havoc Facebook caused has put central banks in the position of catching up with the private sector, as no government wants its money-printing monopoly challenged by a private entity like Facebook.
But the technology behind CBDCs may be the answer to inflation, as the blockchains can be centralized, and manageable by institutions of trust. Moreover, the CBDC network has high transaction capacities, as the Chinese CBDC pilot handles far more than 200,000 transactions, compared to Bitcoin’s 7-8 transactions per second.
Users can hold, send, and receive the digitized version of every currency via a wallet app, which will transform the sole principle of bank accounts. Payment infrastructure would bloom, as more users would be able to open an account and start using digital currencies.
However, the principle behind most of the major CBDC pilots pivots towards wholesale rather than retail model, which means the European Central Bank may mint new tokens, but it wouldn’t distribute them directly to the citizen. The distribution would be done via commercial banks, which would keep the current levels of disintermediation.
Also, as Igor Pejic writes, the global trend of mobile devices expansion is a good base for a CBDC project, as according to current estimates Internet of things (IoT) technology will connect 24 billion devices by 2030. The European Union accounts for almost a quarter of those devices, meaning the market for a CBDC is going to continue to grow.
Meanwhile, payments in the internet of things, machine-to-machine transactions, and pay-per-use models all require programmable payments, which are well within the capabilities of CBDCs by utilizing smart contracts.
In conclusion, Pejic suggests that “central bank digital currency remains the best shot to synchronize cash flows with the flow of services and pave the way to a new economy.” However, at the current state of CBDC development, it is unclear when or how the new payments network would be executed and coordinated between EU member-states, cross-border partners, and other countries.central banks cryptocurrencies cryptocurrency news crypto news digital asset digital Stablecoin Europe Banks CBDC Facebook Diem Association