Introduction
A digital euro, a proposed central bank digital currency (CBDC), is under consideration by members of the European Central Bank and the European Commission.
Key Takeaways
- European lawmakers and regulators have proposed a digital euro.
- The digital euro would be a CBDC used alongside paper money.
- This initiative follows the enactment of the Markets in Crypto Assets regulations.
Advantages of a Digital Euro
Proponents of the digital euro highlight the need for the euro to adapt to a digitalized world and the decreasing use of physical cash.
Enhanced Privacy and Convenience
The proposal ensures that the digital euro would coexist with cash, emphasizing the commitment to maintaining the acceptance of cash in the euro area. Users would enjoy free transactions and the ability to make payments both online and offline using a digital wallet.
Privacy Protection
An essential aspect of the plan is to offer a higher level of data privacy compared to other digital payment methods, particularly through the offline wallet feature. This addresses concerns raised by critics of CBDCs regarding privacy implications of a centralized government currency.
Implications for Users and Businesses
A digital euro could significantly impact the digital payments sector, especially for small businesses facing high transaction fees.
Reduced Transaction Costs
The European Commission estimates that small operators face transaction fees ranging from 1.5% to 5%, with additional expenses of five to 15 euros per transaction. A digital euro with no transaction costs could alleviate this financial burden on users.
Competitive Landscape
While a digital euro could benefit users, other payment providers like Apple, PayPal, and crypto exchanges might face increased competition due to the lower cost of payments. ECB President Christine Lagarde has also voiced support for a digital euro, citing concerns over the volatility of unbacked cryptocurrencies like Bitcoin and Ether.
