With plans of launching the digital euro project, the Eurozone aims at producing “a riskless, accessible and efficient form of central bank money” in order to safeguard European financial autonomy from sovereign foreign currencies as well as private virtual assets.
Currency is one of the most important instruments of a State’s sovereignty. And since the advent of crypto-assets and the faster digitising socio-political and economic activities around the globe, governments are finding viable ways to implement Central Bank Digital Currencies (CBDCs). Similarly, the European Central Bank, the apex bank of the EU, issued a report on the potential of the Euro going digital. The Euro is the second-most widely traded currency in the world. Since the rise of China and a steady shift of power to the East, there have been speculations on Europe’s waning influence in the international sphere. This article, thus, aims at exploring the chances that Europe could have to make a re-entry into the global arena of influence by digitising the euro.
Currency in a digital age
The concept of a digital currency is not novel. Penetration of technological tools and influence has left no stone unturned, and national economies are no exception. The 2008 Global Financial Crisis rang the alarm bells on the heavy reliance of financial institutions on banks and paved the way for Bitcoin. The following decade witnessed a boost in popularity of crypto-assets to an extent that there are more than 4,000 crypto-assets available today. Nearly 86 percent of the countries around the world are actively engaged in working on the viability of their own CBDCs, with as much as 14 percent of the countries deploying pilot projects. The need for which may be accelerated by the pandemic as people have started preferring contact-less payments over in-cash transactions. In October 2020, the European Central Bank, which serves as an apex bank of the Eurozone, came up with a report on the potential use, implications, and challenges of a digital euro. It refers to the digital euro, which would be a Central Bank Digital Currency (CBDC), as a liability of the Eurozone recorded in digital form.
A digital euro would account for an actual virtual currency, but unlike the type we’ve been familiar with until now. CBDCs differ from crypto-assets just as much as they’re similar. If crypto-assets use a decentralised, private distribution mechanism, a digital euro would be a legal central-bank tender distributed using the blockchain technology. A digital euro would be controlled by the central bank, enabling end users to engage directly with the European Central Bank, in this case. A lot depends, however, on the model that the digital euro will have. It has been made clear that a digital euro would not be an alternative to the existing fiat currency, but would be complementary to it. Amongst the important scenarios considered that could push for a digital euro is: Potential shrinkage in the use…