The European Central Bank is launching a vast public consultation on Monday on the possible creation of a digital euro.

Will Europeans ever exchange digital euros? The idea of ​​a digital currency issued by the European Central Bank has seen a boost with the pandemic and the development of dematerialized payments. To decide, the European Central Bank (ECB) is launching a public consultation and a series of tests on Monday for individuals and financial players.

Should the future digital euro be free or paid? Should it take the form of a bank card? Could it be usable without internet? Will it guarantee the anonymity of payments? About ten questions are asked for this consultation, which should last three months – the national central banks will then be able to choose whether or not to launch the project and to discuss its modalities.

A “digital wallet”

The “digital” euro would be an electronic form of central bank money, existing alongside cash. Individuals and businesses could store these currencies in a “digital wallet”. It is envisaged that they could deposit this currency directly with the central bank, access to which has so far been restricted to commercial banks. It “would allow everyone to make daily payments quickly, easily, and securely,” said the ECB in a recent report.

Its promoters argue that transactions would be much faster, even instantaneous, since they do not require interbank settlement, and therefore available 24/7. Its mechanism could be based on blockchain technology (blockchains, a computer protocol reputed to be tamper-proof), on which virtual currencies like bitcoin are already based, but without the volatility of crypto-currencies.

Facing Facebook’s ‘Libra’ project

The ECB wants to support the explosion of dematerialized payments, which has amplified with the coronavirus pandemic. Even in Germany, a country where cash has long been king, in 2020 consumers spent more money on cards for the first time. The ECB fears that this craze will benefit private virtual currencies or foreign currencies.

In 2019, Facebook’s plan to create a virtual currency, Libra, “precipitated central banks’ thinking,” Frederik Ducrozet, expert at Pictet Wealth Management, told hooly News. In addition, several countries like China or the United States have started to seriously consider issuing their own cryptocurrency, pushing the ECB to organize a response. The chairman of the working group, Fabio Panetta, believes that a digital euro would strengthen the financial sovereignty of the EU.

This digital euro would also be a new channel for the monetary policies of the central bank which would have direct access to citizens and could therefore, in particular by setting a rate of remuneration, “directly stimulate household consumption or business investment” , writes the ECB.

But what limits?

The main risk is the flight of savers to this new form of money, which avoids the costs of a traditional deposit account, which would weaken banks in the euro zone. This risk is all the more important “in a period of crisis”, where savers, defying vis-à-vis the banking system, could convert their current accounts, according to the ECB. To avoid this pitfall, the institute proposes in particular to limit the number of digital euros that everyone could own or exchange.

In addition, “what is the desired degree of anonymity? It affects both respect for private life and the fight against money laundering, which are equally legitimate objectives of society. It is not up to central banks. to say which is the most important. We therefore need a political discussion, “said in a recent interview Benoît Coeuré, former member of the management board of the ECB and director of the technological innovation pole of the bank for international settlements (BIS).

A decision expected in mid-2021

The consultation, intended to determine the expectations of the general public, the financial sector and institutions, will last three months. “Tests” will be carried out for six months. The ECB will then decide “around mid-2021” whether or not to start the digital euro. But even in the event of a green light, it will then take “between 18 months and up to 3 or 4 years” to see the initiative materialize, according to a source close to the project.