The ECB prepares the digital euro

Last Friday, the European Central Bank (ECB) released a report showing its intention to carry out the so-called 'digital euro', with the aim of creating a European digital currency, which would be a virtual currency common to 19 countries.

In the report, the ECB described the reasons that could lead to this step and said that it was conducting public consultations on the idea with citizens, bankers and academics. "The digital euro would complement cash, not replace it", the ECB explains in the text.

"Europeans are increasingly turning to digital in the way they spend, save and invest. Our role is to ensure confidence in money. This means making sure that the euro is fit for the digital age. We should be ready to issue a digital euro, should the need arise," said Christine Lagarde, President of the European Central Bank.

The aim is to have the virtual currency in place by mid-2021, which is an intention for the time being, but validated by the report and defended by senior Central Bank officials. On 22 September last, the ECB's legal team registered the 'Digital Euro' mark.

In an open letter, Fabio Panetta, member of the Executive Board of the ECB, explains that: "a digital euro would contribute to financial sovereignty and strengthen the international role of the euro".

The intention of the European Central Bank is to launch a public consultation on 12 October and to assess together with citizens, academics, the financial sector and authorities the benefits and challenges of creating a virtual currency alongside the euro.

A digital euro would be different from the current cashless payment systems managed by the private sector because it would be official central bank money: reliable, risk-free and probably less costly to use. A central bank's digital currency could also be used offline, for example to transfer small amounts between people who use digital wallets on their smartphones and a Bluetooth connection.

Increasingly, cash use is declining in some countries, such as Sweden, where most bank branches no longer handle cash and shops, restaurants and museums only accept card or mobile phone payments. In addition, COVID-19 has led to an increase in these forms of contactless payment.

But the ECB is not the only major bank to study this virtual currency. The Chinese Central Bank is already working on it, while the Swedish Central Bank claims to have started a pilot project.

The US Federal Reserve has a more long-term vision. Lael Brainard, a member of the Fed's board of governors, said in August that the Fed would have to ask itself how U.S. law would be applied. He said no decision had been made "since we are taking the time and effort to understand the important implications of digital currencies and CBDCs (central bank digital currencies) around the world," AFP reported.