The German bank association (Bankenverband) have presented a paper in which they argue for a digital version of the euro. They believe that ‘the economy needs a programmable digital euro’. In addition they wrote in their paper that the currency should be supported by a pan-European payments platform.
The digital system should fit within a state-determined system, where the state has the responsibility for the monetary system. “Anything else would ultimately lead to chaos and instability”, they added to their arguments. Ideally this would be a system supported by a global identity standard, because each person, machine or company needs to be clearly identifiable.
Even though the German bank association claims that the digital euro will gain importance, they also state that the existing system should not be abandoned. They believe a state-owned cryptocurrency is needed, because a private global digital currency like Facebook’s Libra will only cause economic and political conflict.
Central Bank Digital Currencies within five years
This week IBM and the Official Monetary and Financial Institutions Forum published a research about the rise of digital currencies. They concluded that central banks and governments could have digital currencies to potentially replace money within five years. This is even more likely to happen in smaller countries with smaller economies. Central Bank Digital Currencies (CBDC) would be excellent replacements for money.
Over the past twelve months we’ve seen countries like Malta, The Marshall Islands, San Marino, and Liechtenstein introduce all kinds of blockchain-powered initiatives. Malta is putting rental contracts, company registrations and much more on a blockchain. In addition The Marshall Islands introduced a cryptocurrency to use alongside the US dollar, while Liechtenstein approved The Blockchain Act.
Countries want own digital currency
The European Union wants to regulate libra and want to make sure that the digital currency doesn’t hurt the euro. At the same time several European countries have already expressed their wishes for a digital currency of their own. According to ING Bank Central Bank Digital Currencies are unavoidable. Every national bank will have to move to a digital currency or they will be left behind.
Switzerland has already announced a digital currency, while Sweden seems to like the idea as well. However, those two European countries are not dealing with the euro. Within the European Union there are several countries that are still not using the euro. It’s probably easier for those countries to embrace a digital currency.
Germany, France, The Netherlands, Spain and Italy all have the euro as their national currency. Germany has openly expressed its wishes for a digital euro, but this is still a few years away. National governments, the European Union and many other government bodies still need to come to an agreement.
IMF urges central banks to make a move
Last month the International Monetary Fund (IMF) published a report in which they urged central banks to embrace digital currencies. They fear that stablecoins might take away from of the power that originally lies in the hands of banks.
Another reason central banks need to change fast, is that online payments with cryptocurrencies are becoming much easier and faster. At the same time online payments with credit cards have high fees and take lots of time.
Stablecoins are a serious threat to the traditional banking system, dollars, euros and other fiat money. That’s something the International Monetary Fund (IMF) has been warning for since July. IMF sees a role for central banks to regulate and institutionalize stablecoins. They also suggested that central banks could partner with fintech companies and create a digital version of cash.
Also published on Medium.