Chairman of the Digital Euro Association: "The main goal of the digital euro is not yet clear"

Chairman of the Digital Euro Association: “The main goal of the digital euro is not yet clear” – Mail Bonus

The European Central Bank (ECB) plans to launch a prototype of the digital euro in 2023. Over the next five years, Europe could have its own digital currency in the Central Bank (CBDC). However, there are still many questions surrounding the upcoming digital currency. In what form could it be published? Is the ECB too late for the CBDC, especially compared to other central banks such as the People’s Republic of China? To answer these and other questions, Cointelegraph in German spoke with Jonas Gross, President of the Digital Euro Association (DEA) and a member of the European Blockchain Observatory and Forum.

New digital cash

Gross said that compared to digital cash issued by commercial banks, central bank money carries less risk. A commercial bank can always go bankrupt, but a central bank cannot because in an emergency it can print as much money as needed. And in times of crisis, people may want, at least in theory, to transfer all their digital money from a private bank to a central bank, which will mean the end of the commercial banks.

There are two possible ways to avoid such a scenario: Either set a maximum amount that a citizen can have in central bank money or implement a negative interest rate applied to CBDC funds above certain limits.

“The digital euro should first and foremost become a kind of digital cash, also a new method of payment and less valuable trade. The Central Bank does not want to take over the banks’ transactions. “

Complete anonymity

The digital euro will not be adopted by EU citizens if it does not have certain features such as complete anonymity, Gross said. His team conducted a study that showed that it is technically possible to make the digital euro just as anonymous as cash. It is also technically possible, Gross said, to allow digital euro payments to be anonymous only up to a certain threshold, say up to 10,000 euros, where authentication could be required. “This can be a great advantage for the digital euro, especially given that cash is becoming less and less important,” Gross said.

“In an extreme case, after a few decades, there could be very little use of cash, as is currently the case in China or Sweden. And if we did not have a digital euro that at least partially enables anonymous payments, we would no longer have any privacy in payments. Even if it seems transparent, the digital euro can promote privacy if one were to implement such a system with an emphasis on anonymity. “

ECB indecision

According to Gross, the biggest problem at the moment is that the ECB has not yet defined the goals and effectiveness of the forthcoming digital euro. Last year, the ECB, in cooperation with the central banks of several Member States, tested four design options for the digital currency. The first was the digital euro on the KSI blockchain, the core technology used by the electronic government in Estonia.

The second option is a digital euro based on TIPS, a European electronic payment system that was launched in 2018. The third option is a hybrid solution that sits between a blockchain and a traditional banking system. Finally, there is the fourth holder document, which is a kind of money card that can be used for payments or hardware that can process payments online without access to the Internet.

These are just rough possibilities, Gross said, and the ECB has not yet settled on a single design because the scope of the possible use of the digital euro is not entirely clear.

Potential geopolitical risks

Projects such as the digital yuan, the CBDC in China, could weaken the position of the euro altogether, especially if foreigners are also given access to its use. Digital currencies can make it easier and cheaper to pay in that currency, Gross explained. In the war between Russia and Ukraine, the question of international payments and monetary constraints is once again becoming geopolitically important.

“The Russian government says it will now have to pay for Russian gas in rubles,” Gross said. “Theoretically, the Chinese can also come up with the idea that the products we need to export, which are now sold in US dollars or euros, will from now on be paid for in Chinese currency, for example in digital yuan.

China can strengthen its currency by digitizing it, which could cause the euro to lose some of its influence in the future. This is why the ECB should go faster on the digital euro and decide what it wants out of the CBDC after all.

This is a short version of the interview with Jonas Gross. You can find the full version here (in German.)