In a move to adapt to the increasing digitalization of financial transactions, the European Commission has presented a proposal for the introduction of a digital euro.
The plan, unveiled on June 28, aims to provide consumers with a European-wide payment solution and offers the promise of complete privacy. The proposal outlines the establishment of a Central Bank Digital Currency (CBDC) that functions as electronic cash, allowing users to store up to €3,000 digital euros in secure wallets for both offline and online payments.
While cryptocurrencies like Bitcoin have gained mainstream popularity, the digital euro would differ in its nature as a CBDC, backed by the European Central Bank and serving as legal tender across the euro area. Valdis Dombrovskis, the Commission's Executive Vice-President, emphasized the convenience of the digital euro.
"Having a topped-up digital euro wallet on your phone - or other device - will be the same as having coins and banknotes in your pocket. You will be able to pay just as easily. You don’t even need to have an internet connection. It will be legal tender, backed by the European Central Bank to make it universally accepted across the euro area," Dombrovskis explained.
The European Commission's data reveals that 55% of EU citizens prefer cashless payments, while 22% favor cash and 23% have no preference. Addressing concerns over privacy, Dombrovskis assured the public that personal data would be fully protected, with banks and even the ECB unable to access or trace individuals' personal details or data. Offline payments using the digital euro would provide a level of privacy similar to that of cash transactions.
To alleviate concerns from commercial banks regarding potential bank runs, the proposal includes measures to ensure financial stability. A provision would limit the amount of money individuals can store in digital euros, thereby safeguarding banks from significant outflows. Dombrovskis specified that a cap of €3,000 is being considered.
The introduction of the digital euro will require the support of the EU's 27 member states and the European Parliament. The European Central Bank is expected to approve the digital euro in October, with plans for its launch scheduled in 2027.
Several countries have already ventured into the realm of digital currencies. China became the first major economy to launch a digital currency in 2020, while nations such as Jamaica, the Eastern Caribbean, and the Bahamas have also implemented their own digital currencies. The United States is currently in the process of developing a digital dollar, although experts suggest that its realization may take several more years.
As the digital era continues to reshape the financial landscape, the proposal for a digital euro represents the European Union's efforts to adapt to evolving consumer preferences and embrace the possibilities offered by technology while ensuring privacy and financial stability in the process.
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