The European Central Bank (ECB) is moving forward with plans to introduce a new ‘digital euro’ currency, but one expert has called into question its likely effectiveness.
Amsterdam-based financial regulation expert Lous Vervuurt of Pinsent Masons was commenting after the ECB confirmed that a two-year investigation into the design and distribution of a digital euro has ended and that the project is moving into the “preparation phase”.
The preparation phase, which will run for two years from 1 November 2023, will “involve finalising the digital euro rulebook and selecting providers that could develop a digital euro platform and infrastructure” and “also include testing and experimentation to develop a digital euro that meets both the Eurosystem’s requirements and user needs, for example in terms of user experience, privacy, financial inclusion and environmental footprint”, the ECB said.
Any decision on whether to implement a new digital euro would follow the preparation phase.
The ECB has published a new report that summarises the findings of its investigation and sets out the institutions outlook for the next phase (44-page / 486KB).
Christine Lagarde, president of the ECB, said: “We envisage a digital euro as a digital form of cash that can be used for all digital payments, free of charge, and that meets the highest privacy standards. It would coexist alongside physical cash, which will always be available, leaving no one behind.”
However, Vervuurt said the digital euro proposals are limited, which may impact the value of introducing it.
“The digital euro in the proposed form doesn’t seem to have additional value to the financial landscape in the eurozone,” Vervuurt said. “A substantial percentage of payments is already made digitally – for example, that’s four out of five payments in the Netherlands. The maximum wallet amount envisaged is €3,000 which would limit its effectiveness. As it is a digital coin, governmental authorities can monitor payments, for example to address the risk of money laundering, but this may open new privacy risks.”
A similar project exploring the case for introducing a new ‘digital pound’ is being driven by UK authorities.
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