European countries are among the most affected in the world by COVID-19. In fact, the economic shutdown and social restrictions have caused changes in purchasing behavior and in the way citizens of European Union member countries pay.
According to a recent study by GFK and published by Visa, the pandemic has led to the adoption of digital payments in all Member States, but especially in Europe, where citizens have increased payments without contact by 45%.
Thus, the use of e-commerce It also increased by 52% according to the study, six percentage points above the average for the rest of the countries, also considering that 23% of users have made online purchases for the first time.
According to this new panorama, the European Union plans to issue what it has called the digital euro. But what does the digital euro consist of? When would this happen? How does this affect me as a citizen? What advantages does it have?
What is the digital euro?
The digital euro is nothing more than central bank money that would be available in digital format for small payments. In a way, it complements the current supply of central bank liquidity and wholesale deposits.
As you will remember, on January 1, 1999, the euro became the official currency of over 300 million Europeans. During the first three years, it was a currency that did not circulate and was only used for accounting purposes in electronic payments.
It was in January 2002 that it replaced the national banknotes and coins of each country, such as the Belgian franc, the German mark or the Spanish peseta, at irrevocable conversion rates.
Currently, euro banknotes and coins are legal tender in 19 of the 27 Member States of the European Union, including the overseas departments and the territories and islands which are part of its Member States or which have an official status. ‘association with them.
What are the advantages of a digital euro?
Payments are undergoing profound change and the more than 19 central banks that are part of the euro area play a key role in this process. In this way, a digital euro would be a digital symbol of the progress and integration of Europe.
he digital euro It is intended to be a secure instrument for making daily payments quickly and easily, encouraging payments between retailers. This would combine the efficiency of a digital payment instrument with the security of central bank money.
The digital euro is driven by an increased demand for electronic payments, a decrease in the use of cash, the launch of global private means of payment and the wide acceptance of digital currencies by banks issued by other central banks .
Its design would allow interoperability with private payment solutions, which would facilitate the offer of pan-European products and additional services to end consumers. The ECB would be the guardian of the digital euro, both for banknotes and for the digital format.
One way or another, citizens could stop paying in cash, thereby avoiding reliance on digital payment instruments issued and controlled from outside the euro area, to ensure financial stability. The main advantages are:
- Surcharge in cash and deposits
- Create synergies with the payments industry
- Support the digitization of the European economy
- Guarantee access to central bank money
- Avoid the risks of unregulated payment solutions
- Prevent the use of foreign digital currencies
The protection of the privacy of users would also be a fundamental aspect for the digital euro to help maintain confidence in the means of payment in this new situation in which electronic commerce and online shopping continue to develop.
When will the digital euro arrive?
The European Union has not yet taken the decision to issue the digital euro. However, the organization recognizes that it is in the process of preparing, developing the concept, carrying out practical experiments, listening to the opinions of the general public and working with stakeholders.
In the words of Fabio Panetta, Member of the Executive Board of the ECB, “we must make sure that our currency is suitable for the future. We cannot stand idly by ”.
Thus, the launch of the digital euro project is scheduled for the middle of this year 2021, in order to prepare for its possible issuance in the future.
Recently, the President of the European Central Bank Christine Lagarde, affirmed that “the implementation process will take time, but not more than five years for the European Union to use the digital euro”.
What is the difference between the digital euro and cryptocurrencies?
Cryptocurrencies (also crypto assets) are not central bank money. The main difference, therefore, is that cryptocurrency prices are volatile because they have no intrinsic value and are backed by companies or private investors.
With the launch of the digital euro, the ECB would protect the euro from the cryptocurrency boom, allowing citizens to use this form of digital payment securely
You can find more information in the ECB podcast at Is the time right for a digital euro?.