Bitcoins over euro bill

European Commission: Digital euro bill due for early 2023

At CoinGeek, we’ve been keeping a close eye on the digital euro project. We previously reported that the European Central Bank (ECB) had given the digital euro the green light and that early experimentation was underway. This week, the European Commission announced that a bill, which will serve as the legal foundation for the euro central bank digital currency (CBDC), will be proposed in early 2023.

The digital euro bill and timetable—what we know so far

The digital euro bill will legally underpin the digital euro project as of early 2023. We also know a little about the EU’s timetable for the CBDC.

  • A public consultation is due next month. The last interaction with the public found that privacy was one of the top concerns regarding the project.
  • The ECB is currently conducting experiments and expects to launch a working prototype in late 2023.
  • After this, Eurozone governments will decide whether or not the CBDC is worth pursuing. Many policymakers are already convinced, so this should largely be a formality.
  • If they decide to go ahead with it, the earliest we can expect it to be ready is in 2025.

Key European countries such as Germany and France have called on the ECB to speed things up over fears of being left behind. Given this, it’s safe to assume that the digital euro is highly likely to become a reality.

What is the digital euro and why does it matter?

The digital euro will be a fully digitized CBDC version of the euro currency. Like digital currencies in China, India, and elsewhere, it won’t seek to replace cash and euro notes but will aim to exist alongside them.

The digital euro matters because the European Union is currently the world’s largest single market area. When the EU’s free trade deals with other nations are considered, it encompasses a huge share of global trade.

While the digital euro will certainly empower Europe’s central bank domestically, giving it the power to directly stimulate the economy through direct money drops to wallets holders, it will also empower the EU geopolitically.

For example, it’s no secret that Europe’s interests diverge in key areas from those of the United States. The U.S. dollar being the world reserve currency, had limited Europe’s objectives in recent times, such as when U.S. President Donald Trump ripped up the Iran nuclear agreement and European institutions attempted to create alternative financial systems to continue trading with Iran. 

These efforts didn’t amount to much due to fears of repercussions from the United States, which controls the SWIFT banking system and the world reserve currency itself. Having a fully functional digital euro that would likely travel on new rails outside of the SWIFT system would empower the European Union on the geopolitical stage. When taken in conjunction with deals such as the new China-Russia gas deal, which will be settled in euros, this could lead to the euro becoming a more significant global currency, and thus the EU becoming more powerful on the world stage.

Aside from the geopolitical level, the euro CBDC would certainly bring about some benefits closer to home. It could allow the ECB to directly stimulate struggling EU economies like Greece and Spain and even to target key areas such as specific cities or regions via direct monetary stimulus. Other benefits, such as real-time tax collection, have been brought up as some of the potential benefits of CBDCs.

Of course, there’s a flip side. Skeptics have raised a number of concerns about inflation and how much power central banks should have. Commercial banks have also expressed concerns about potential bank runs if citizens decide to move their money into digital wallets. Some fear a destabilization of the European financial system.

In short, the digital euro matters because it will profoundly change things in the European Union and elsewhere. With China, India, and others racing to roll out their CBDCs fully, you can bet it won’t be long before the digital euro becomes a reality.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

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