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The digital euro is on the move. The European Central Bank (ECB) has approved the start of the preparation phase for the digital euro, signalling that the next stage of its central bank digital currency (CBDC) rollout is imminent. This development has sparked much discussion and debate, with some concerned about the potential implications for financial freedom in Europe.
The ECB has been actively working on developing the digital euro for the past year or so. They released a working paper in August last year that outlined the economic aspects of a CBDC, suggesting that cash could be phased out in favour of digital currencies like the digital euro. The paper also mentioned the potential use of CBDCs to address “moral hazards” and implied the possibility of increased control over financial transactions.
In January, the ECB released its second progress report on the digital euro, which provided further insights into its development. The report suggested a shift in approach, with the ECB now planning to focus on the issuance and settlement of the digital euro while leaving other aspects, such as customer data management, to the private sector. This change in strategy was likely a response to the backlash and concerns raised in response to the initial working paper.
Since then, there have been multiple updates on the digital euro. In August, the ECB put a pro-crypto politician in charge of the digital euro team, indicating a potential shift in approach towards digital assets. Earlier this month, the ECB announced it had entered the preparation phase for launching the digital euro. However, this news was met with pushback from other European regulators who expressed concerns about privacy and control.
To address these concerns, the ECB published a report titled “A Stock Take on the Digital Euro” that outlined the progress made in the investigation phase and provided an outlook on the next step. The report highlighted several key points. Firstly, it emphasized the need for a digital euro, citing benefits such as privacy and addressing geopolitical risks. However, it also acknowledged that there would be limits on digital euro holdings and that confidentiality would not be possible in the traditional sense.
The report also discussed how the digital euro would be introduced to end-users, with initial availability limited to eurozone countries and eventually expanding to other European countries. Users would access the digital euro through their banks, and there would be limited holdings for financial stability reasons. Businesses would have a zero holding limit, but they could hold digital euros offline. The report also mentioned the possibility of offline payments using secure elements within phones.
Regarding privacy and data protection, the report assured users that their data would be protected but also mentioned the need to prevent fraud and tax evasion. Payment service providers could share private data with the ECB, as mandated by the EU’s Data Act.
Looking ahead, the report stated that the digital euro legislation would need to be approved by EU politicians, and the final decision to issue a digital euro would rest with the ECB’s governing council. If all goes according to plan, the digital euro could be launched in late 2025 or early 2026.
While the digital euro is still developing, it is vital to remain informed and understand the potential implications. As with any new technology, there are benefits and risks to consider. It is also essential to explore alternatives and protect one’s financial interests. This could include advocating for more inclusive and decentralized currencies or using alternative cryptocurrencies like Bitcoin. Ultimately, adopting a digital euro will depend on various factors and decisions made by policymakers and regulators.
