The European Central Bank has been considering issuing a digital version of the euro for several years, which 340 million people currently use every day. Despite many skeptical voices, particularly with regard to privacy protection, most industry experts agree that the digital euro is coming. But when it will come, how it will be designed and what benefits it will bring with it – there is still uncertainty about this. On Thursday, the topic became heated at the Digital Euro Conference in Frankfurt, as numerous experts controversially discussed a “Central Bank Digital Currency,” or CBDC for short. How will central bank digital money affect our financial future?
Other exciting topics such as stablecoins or RWA tokenization were also discussed, but the digital euro dominated events. Finally, the EU Commission proposed a law for the CBDC in June 2023 and last month there were also the first official tenders from the ECB. The central bank is looking for private providers to develop services around a digital euro. Patricia Battenberg, CIO of Worldline, sees this development positively: “We are building something like another smartphone. In doing so, we enrich today’s financial and banking landscape.” However, only some of the participants supported this optimistic assessment.
What are the benefits of the digital euro?
Proponents of digital central bank money usually cite faster transactions and lower fees as important advantages. The ECB project would also reduce dependence on American payment service providers such as Mastercard and Paypal. But does this really require a CBDC? Manfred Richels, Managing Director at UniCredit, takes a critical view of this: “Everything is currently being set up in such a way that it is under the control of the ECB. This is not a driver for innovation.”
In fact, private alternatives like this could European Payments Initiative offer comparable technical advantages. It therefore remains unclear what benefit ordinary citizens would actually have from introducing the digital euro. Economist Peter Bofinger also thinks so, using a metaphor:
Most people like wine because it contains alcohol. And most people like cash because it’s physical. If you take away the physical property and create a digital cash, it’s like non-alcoholic wine. Maybe some people like that, but most people don’t really want it.
Professor Peter Bofinger, Digital Euro Conference
Most experts do not expect a final decision on the digital euro until 2028/2029. Despite all this, ECB officials seem convinced that their CBDC itself could slow down the success of decentralized alternatives like Bitcoin. However, without a mandate, the ECB cannot implement its ambitions and there is political resistance to the adoption of a law in the European Parliament.
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