News and resources on digital currencies, crypto assets and crypto exchanges worldwide.
EU finance ministers take stock of digital euro; UK scepticism grows

EU finance ministers take stock of digital euro; UK scepticism grows

The Eurogroup, a body comprising the finance ministers of EU countries, has waded into the debate about the digital euro, insisting that the new currency be seen as a complement to cash with full legal tender status and a high degree of privacy.

The Eurogroup considers that the introduction of a digital euro as well as its main features and design choices requires political decisions that should be discussed and taken at the political level.

Taking stock of progress, the group maintains that a digital euro should complement, and not replace cash, should be safe and resilient, ensure a high level of privacy, be easy and convenient to use and widely accessible to the public, including in terms of costs for end-users. Ministers also called for considering the environmental implications of the digital euro design.

Privacy is emphasised as a key dimension in the design, while at the same time complying with other policy objectives such as preventing money laundering, illicit financing, tax evasion, and ensuring sanctions compliance.

EU governors suggest a risk-based approach could be followed to allow for more privacy in the case of less risky transactions. The Eurogroup also supports the exploration of an offline functionality which would serve a wider range of use cases and also contribute to financial inclusion.

Interoperability with other Central Bank Digital Currencies is also viewed as another touchstone, including for cross-currency transactions.

"This will also take into account the development of CBDCs by other jurisdictions, in order to reap the potential benefits of faster, cheaper and safer cross-border transactions," states the Eurogroup. "On the other end, the risks associated with the use of a digital euro outside the euro area must be mitigated and monitored."

The tentative endorsement of the project across the Eurozone contrasts with a more critical take in the UK.

Last year a Committee of peers in the House of Lords concluded that there is no convincing case for the creation of a central bank digital currency in the UK.

BofE governor Andrew Bailey has recently questioned the need for a wholesale central bank digital currency given the current upgrades of the payments infrastructure underway in the UK. He is unconvinced about the need for change in retail payments, stating: “We have to be very clear what problem we are trying to solve here before we get carried away by the technology and the idea.”

Former BofE adviser, Tony Yates, has also cautioned against the development in an opinion piece in the Financial Times yesterday. Yates questioned the motivations behind the development of CBDCs, describing them as “suspect”.

“I detect that some are doing it for a vague notion that CBDCs are the future," he wrote. "Others worry that central banks that don’t do a CBDC will lose out in global currency usage.”

He argues that the supposed efficiencies of CBDCs would not outweigh the massive costs central banks would incur by building and staffing the necessary IT infrastructure and processes.

Comments: (2)

A Finextra member
A Finextra member 18 January, 2023, 07:531 like 1 like

A solution eagerly looking for its problem to tackle? 

Richard Garnier
Richard Garnier - Capital Horizon - Stockholm 25 January, 2023, 11:161 like 1 like I have read your article about the Eurogroup's stance on the digital euro and I have some concerns about their approach. You mention that the Eurogroup emphasizes privacy as a key dimension in the design of a digital euro, while also complying with other policy objectives such as preventing money laundering, illicit financing, tax evasion, and ensuring sanctions compliance. This already shows where they want to go with CBDCs. In contrast, stablecoins and cryptocurrencies in general can be accessed by all. If a future CBDC has to include protections against money laundering, tax evasion, and other things related to compliance, they will have the same challenges that banks face today, and it won't help with financial inclusion, as many of the unbanked around the world would just become un-CBDCed. The thing about crypto, stablecoins, and CBDCs is that they should be seen as an infrastructure element, to elevate web2 to web3. But the whole idea of every single person having to protect their digital assets on their phones is as naive as thinking that a centralized government-controlled CBDC is the way to privacy, freedom, and democracy. Instead of focusing on preventing money laundering, illicit financing, and tax evasion, governments should focus on creating a legal and regulatory framework that encourages the responsible use of digital currencies and supports innovation. The article also mentions that interoperability with other Central Bank Digital Currencies is viewed as another touchstone, but the reality is that most central banks are not aligned in their approach. This lack of consensus and agreement shows that one CBDC wouldn't easily speak to another without oracles and middlemen, and then we are back to what we already have today. Lastly, I disagree with the statement that the environmental impact of digital currencies is as important as hinted, as it is minimal when compared to traditional banking, fiat & card systems. Instead of worrying about the environmental impact of digital currencies, governments should focus on the environmental benefits of digital currencies, such as reduced paper usage and energy consumption, utilization of excess energy, such as wind turbines at night, solar during the day, or the placement of mining farms in areas with natural energy. I hope my comments provide a different perspective on the topic, and I would appreciate your thoughts on my points