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A digital euro for the digital era

Summary:
ECB has published a report on Digital Euro. Fabio Panetta of ECB in forward to the report: We already have an array of choices when it comes to retail payments: central bank money in the form of cash, commercial bank money – for example, digital bank deposits – and non-bank digital money (such as payment cards). What we do not have is a digital currency that is issued by the central bank and that we can use for all our daily transactions, including in e-commerce. A digital euro would fill this gap: it would be an electronic form of central bank money accessible to all citizens and firms – in other words, a digital equivalent of euro banknotes. It would provide costless access to a simple, risk-free and trusted digital means of payment, accepted throughout the euro area. In the digital

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ECB has published a report on Digital Euro.

Fabio Panetta of ECB in forward to the report:

We already have an array of choices when it comes to retail payments: central bank money in the form of cash, commercial bank money – for example, digital bank deposits – and non-bank digital money (such as payment cards). What we do not have is a digital currency that is issued by the central bank and that we can use for all our daily transactions, including in e-commerce.

A digital euro would fill this gap: it would be an electronic form of central bank money accessible to all citizens and firms – in other words, a digital equivalent of euro banknotes. It would provide costless access to a simple, risk-free and trusted digital means of payment, accepted throughout the euro area. In the digital era, it would preserve the public good that the euro provides to European citizens.

Compared with existing means of digital payments, a digital euro would provide added value in several ways. First of all, it could be used for payments anywhere, by anyone and at any time – just like cash in the physical world.

Second, it would bring simplicity: a digital euro should be designed to be easy to understand, easy to use and easy to transfer. Regardless of its features or the technology it would be based on, people from all groups in society should be able to use it in their daily lives. This is because making a payment is about more than just exchanging money for goods and services: it is a form of social interaction made possible by money, which has been described as “the most universal and most efficient system of mutual trust ever devised”[7].

Finally, a digital euro would increase privacy in digital payments thanks to the involvement of the central bank, which – unlike private suppliers of payment services – has no commercial interests related to consumer data. Ensuring privacy is an essential element of modern democracies and part of our European values. Payments must also respect people’s right to privacy in the digital era, and the design of a digital euro would have to respect this principle. This is a core aspect we will look at – indeed, we have already started exploring possible ways of enhancing privacy.[8]

At the same time, payments in a digital euro – just like any form of payment – would have to respect the rules on countering money laundering, the financing of terrorism and tax evasion. This would enable public authorities to combat any illegal activity more effectively.

To summarise, the digital euro would still be a euro, only in digital form. It would both shape and promote the digitalisation of payments, while reducing the associated risks. This would in turn support the ongoing digitalisation and modernisation of the European economy.

Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

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