Digitalization is the way forward, and the European Central Bank has found the key: a digital Euro. In development since 2021, the planned digital Euro will help fast-track the region’s shift towards safer and more convenient online payments. Like cash, the ECB envisions its digital currency as widely accessible, risk-free, and free to use. However, the road to Euro’s digitalization has been paved with politics and controversies.
Politico reports that some European Union governments are reportedly expressing concerns over the ECB’s regulation of the digital Euro. In its report, Politico said there’s an ongoing “tug-of-war” between several EU governments, like Germany and France, and the ECB over the planned coin’s regulatory framework, particularly on how much digital currencies a citizen can hold in a wallet backed by the central bank. Both sides fear that it can destabilize the region’s banking system if the regulatory framework isn’t addressed.
Digital Euro: So What’s The Limit?
The heart of the digital Euro debates is the amount consumers can store in wallets backed by the central bank. Some technocrats and politicians worry that if there’s a higher limit, consumers may end up pulling huge sums of money from banks during a crisis, thus disrupting the stability of the banking system.
Others question the need for a cap on the wallets; they say such a move may violate personal financial freedom and give rise to a “Big Brother” scenario.
In short, the current debates around the planned digital Euro settle on one crucial issue: where does the ECB draw the line? Some observers and analysts say that many EU countries are now reacting to the ECB’s extensive control over the financial system. In the words of one diplomat, the current debate is simply about “power.”
ECB’s Commitment To Digital Euro Comes At A Cost
The idea of a national digital currency became famous in 2019 when Facebook failed to launch Libra, a global cryptocurrency. The failed project spooked the world and inspired over 100 central banks to return to the drawing board.
While many projects did not push through, the ECB’s plan to create a digital Euro pushed through. As part of the ECB’s plan, the digital Euro can become an efficient alternative to traditional payment systems. They can cut the region’s dependence on non-EU and US payment systems.
Image: Positive Money
However, the ECB’s laser-focused commitment to a digital Euro comes at a cost. Some EU-member countries were spooked by the central bank’s plans and actions, which they describe as “technocratic.”
As such, many EU member countries are taking steps to bring the ECB to the discussion table. Brussels, for example, uses political pressure to influence the currency’s design.
Differing Views
Under the current draft regulations, the ECB can decide how much digital funds users can store in their wallets. Other officials also confirm that only the central bank has the power to adjust the region’s money supply.
However, at least nine EU member countries have different ideas. According to a group that includes Germany, the Netherlands, and France, they argued that Frankfurt (ECB’s headquarters) should not limit the decision-making powers of other countries.
Diplomats invoked political supremacy, stating that the planned digital Euro is not just a monetary tool but a financial service that impacts every European.
Featured image from CNBC, chart from TradingView