December 09, 2020

Launch of the digital euro: background, plans, and preparations

Since China began testing the digital yuan, discussions on other central bank digital currencies (CBDCs) have been intensifying. On Monday, information appeared that in the middle of 2021 will start the development of a plan for the launch of the digital euro.

"Plan" does not mean "implementation"

The news was announced by Holger Neuhaus, Head of Market Innovation and Integration of the European Central Bank (ECB) during the Singapore FinTech Festival 2020. Neuhaus highlighted that in 2021 only the beginning of the theoretical stage of discussions on the digital euro. The authorities will just discuss whether to launch a digital euro.

“It would be an investigation phase, not the decision yet to implement. It would basically allow us to come up [...] with actually a plan, and what could be a digital euro, how could it look like, how could it be implemented, if and when a policy decision is taken.”

A month ago, it was reported that the decision could take from two to four years: the head of the ECB Christine Lagarde announced it at the online conference “ECB Forum on Central Banking 2020”.

Preparation is in progress

The launch of the digital euro does not look like a near-term event, but preparations are going on at the European central bank and the European Parliament.

Since March, the beta version of the digital euro has been tested by institutional clients, including the Bank of France: software from different developers was in trial.

Since mid-October, the ECB has been publicly collecting stakeholder views on the digital euro, the need for it, and its potential use.

Also in October, it became known that the ECB had applied for the registration of the digital euro trademark. An official message about this appeared on the website of the EU Department for Intellectual Property.

Digital currencies of European countries may appear before the "crypto euro"

The countries of the European Union are discussing local digital currencies regardless of the CB. In April, the Netherlands bank announced its ambitions, which seeks to play a leading role both in the formation of the digital euro and in the development of the own digital currency of the Netherlands.

The Swiss central bank is planning to test the national digital currency and cross-border payments with it in 2020.

And the Central Bank of Lithuania in July issued its own digital coin, which became the first in the Eurozone. But LBCOIN tokens were presented not as money, but as a collectible item, and the LBCOIN "package" could be exchanged for a real silver coin.

Most central banks are interested in digital currencies because the new money will help reduce transfer costs and increase the stability of the financial sector. However, technically, there are significant risks that force regulators to be really cautious about CBDC.

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