Advance the digital euro project. The European Central Bank has started the preparation phase of the digital euro after completing the investigation phase.
The Governing Council of the ECB has, in fact, opened the two-year period in which will define the rules of the project, will select private platforms for distribution, infrastructures for transactions and establish where savers' digital deposits will be kept. The preparation phase will begin in November 2023 and aims at the development and testing of the digital euro, based on the results of the preliminary phase.
Before we proceed, it is European legislation approval is required under discussion, with the final word entrusted to the Council of Ministers of the European Union and the European Parliament. If the project were to come to fruition, it would bring great innovations to the European financial system.
The introduction for citizens of the European Community However, it shouldn't arrive before 2026.
How will the digital Euro work?
The digital euro will work by storing amounts in an electronic wallet (wallet) created by users at their bank or a public intermediary.
Every citizen of the euro area will be able to have a account at one of the twenty national central banks of the Eurozone system through private providers of digital payment services. Residents in Italy, for example, will be able to have an account at the Bank of Italy for this purpose.
The bill will allow them to manage up to three thousand euros and use digital euros to make electronic payments via smartphone or card. Compared to traditional cards there are some differences: the use will be free for the consumer (even if it is immaterial it is still a central bank currency), it could be also used offline and while payments will be made by deposit accounts at one of the Eurosystem central banks.
Physical currency remains in place
It is worth reiterating that this is not the end of the paper Euro. It will always be possible to use physical currency or private payment cards. Sellers, however, will be required to offer the digital euro payment option if they already accept other digital payments (already mandatory in Italy).
Why the idea of the digital Euro?
The digital euro will be a free, secure and private means of electronic payment, similar to cash, usable in all euro area countries. It is considered a natural evolution of the single currency, adapted to the growing digitalisation of society. The digital currency was designed to simplify digital payments. Furthermore, it would help strengthen the monetary sovereignty of the euro area and promote competition in the European payments sector.
A ceiling of 3.000 € for each individual account, a measure introduced by the ECB for avoid competition excessive at commercial banks.
Commercial banks are worried
The introduction of the digital euro is arousing concern among commercial banks for several reasons. One of the main concerns is the competition that the digital euro could represent for private banks. With the digital euro offered by the European Central Bank (ECB) with zero costs for consumers, private banks may find themselves having to compete on an equal basis for customer deposits. This may erode profit margins of commercial banks, with some analysts (such as Andrea Filtri of Mediobanca) indicating a possible rprofit reduction between 5% and 20%.
Furthermore, the digital euro could perform more difficult for private banks offer low returns, such as those below 1%, on deposits, since the ECB offers more favorable interest rates for the same deposits. Additionally, the increase in traceable digital transactions could contribute to reduce tax evasion, which could have further negative impacts on banks.
Anticipate new digital currencies
The ECB is accelerating the digital euro project to prepare for possible entry into Europe of digital coins issued by large platforms like Meta, Amazon and even lo Chinese digital yuan, which is already in an advanced stage of development in Beijing. This acceleration is dictated by the need to maintain control over money and financial stability in the digital age.
And in this project there is also an important role for Italy with Fabio Panetta, new governor of the Bank of Italy, who has led the operation and who has now passed the baton to Peter Cipollone.
