The digital euro, classified as digital central bank currency, distinguishes itself from cryptocurrencies. When the European Commission proposed the introduction of this Central Bank digital Currency (CBDC), various conspiracy theories surfaced during the Covid-19 pandemic. But what is it really about?
Unveiling the digital euro: A Legal Perspective
The European Commission's proposal to introduce the Central Bank digital Currency (CBDC), commonly known as the digital euro, stirred debates, echoing conspiracy theories akin to those during the Covid-19 pandemic. What are the real implications? Are concerns justified? What issues does the digital euro seek to address? This contribution sheds light on the unknown, potentially becoming the new norm in the future. I will address these questions and shed light on something that is currently unknown but could easily become the new normal in the future.
Understanding the digital euro
The digital euro, categorically falling under digital central bank currency, stands distinct from virtual currencies or cryptocurrencies.The key difference lies in the fact that a virtual currency is a non-governmental currency. Unlike non-governmental virtual currencies, the digital euro and other digital central bank currencies are issued by institutions like the European Central Bank or the Nederlandsche Bank.
Imagine it as a digital representation of a traditional banknote, digitally available much like the funds in your bank account. Understanding it as public money is crucial for maintaining financial system stability; a reduction in public money circulation can destabilize the entire system. The digital euro is public money. The availability of public money is crucial to maintaining a stable monetary system. If there is less public money in circulation, the monetary system becomes more unstable.
"If there is less public money in circulation, the monetary system becomes more unstable."
Consider this example: The significant difference between the digital euro and the amount visible in your bank account is that the digital euro is guaranteed by a central bank (public money). The amount in your bank account is the amount the bank owes you. If everyone wants to withdraw the amount they see in their bank account, significant problems arise.
The Need for the digital euro
An interesting question is what problem the digital euro will solve or, more precisely, is there even a problem? Generally, it is believed that the digital euro is a solution in search of a problem. In other words, it adds little value.
The well-organized electronic payment system in the Netherlands might render it seemingly unnecessary; you can use your debit card almost everywhere, leading to a significant decline in the use of cash in recent years. But cross into Germany, and scenarios requiring cash transactions become evident. The digital euro aims to provide solutions for such situations and offers practical advantages. There are also various other examples where the digital euro can be valuable. One of the most interesting examples, especially for the Netherlands, is that the digital euro should be available in case of a card payment system outage, allowing payments to be made.
"Diverse scenarios illustrate the practical advantages of the digital euro."
In short, the digital euro offers various practical benefits, making it a useful tool in our daily transactions.
Privacy Considerations
One of the most debated aspects of the digital euro revolves around privacy concerns. While physical cash transactions are challenging to trace, digital payments often expose more personal data. Addressing these concerns, the European Commission's proposal published on June 28, 2023 emphasizes technical measures. Article 35 of the proposal indicates that necessary technical measures will be taken to shield identity, including the use of pseudonyms.
"Ensuring privacy in digital transactions: Pseudonyms and technical safeguards."
While the criticism is not unfounded, the question remains whether the concerns are justified. After all, if person A gives €100 to person B now, person B knows it's from person A. If person A then sends 100 digital euros to person B, visible as 1234, person B still knows they are from person A.
In Conclusion
The feedback round following the publication of the European Commission's proposal has concluded, allowing the legislative process to continue. Only after the legislative process is completed can we consider the actual use of the digital euro. It is expected to take some time; the commission itself anticipates 2028. The future unfolds, and the digital euro beckons us to explore new financial territories. Embrace the journey; the best is yet to come.
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