The digital euro as paperless cash

Dhe public discussion about a “digital euro” continues. Federal Finance Minister Olaf Scholz recently declared that he supported the efforts of the European Central Bank (ECB) to introduce a digital euro. According to ECB President Christine Lagarde, the euro should also be “ready for the digital age” and be introduced on a digital basis if this becomes necessary. The discussion about the introduction of digital central bank money has also come into focus because others are already much further ahead than the EU when it comes to implementing digital payment models. For example, the mega-corporation Facebook is pushing its own digital currency Libra – now renamed Diem – onto the market.

China is certainly generating another major drive for the introduction of a digital euro. The country in the middle is just about to win the race for the first digital national currency against the EU and the United States. The E-Yuan is already in a pronounced test phase there. The Chinese central bank is putting the EU and the United States under pressure by realizing a “digital Chinese currency”. In Shenzhen, Suzhou, Xiong’an and Chengdu, apps are already being tested that can be used to pay in “e-yuan”. An expansion of this new payment infrastructure to other Asian and African countries has already been discussed.

The ECB has to react to this and wants to make a decision as early as mid-2021 as to whether it will deal more closely with the digital euro. A public consultation was carried out to find out whether a digital euro is generally desired and which requirements it should meet. While digital currency systems are already being developed and tested to a considerable extent in China, the EU is still largely in the process of forming an opinion.

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Tech companies as competition

The discussion about the digital euro is becoming increasingly confusing. In order to grasp the topic, however, it is necessary to consider it on different levels. To do this, one must first understand how our euro monetary system works. The ECB has the monopoly on issuing central bank money: only it can issue physical banknotes and coins or make money available in electronic form in central bank accounts of banks and other financial institutions. For private customers and the rest of the economy, however, the “electronic ECB money” is not directly available.

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