The vast development of the digital world is making it almost inevitable for central banks to step in and adapt. For decades, central banks printed tons of banknotes into a financial system, and now ECB is developing the digital euro alongside five prominent firms.
Digital euro might be on the way
A digital euro, which the ECB describes as a central bank-issued substitute for cash, is currently the subject of a two-year inquiry. The ECB must decide by September 2023 whether to issue one. The EU is actively exploring central bank digital currencies (CBDC) while it’s behind China, which is already testing CBDCs. However, Fed is behind ECB as it has not yet shown significant interest in digital currency.
Five companies will work with the European Central Bank (ECB) to create potential user interfaces for the digital euro. Each of the chosen organizations will concentrate on a particular use case of a digital euro in collaboration with the ECB team. The selected companies to work with ECB are Amazon, Nexi, EPI, Worldline and CaixaBank.
The European Payments Initiative (EPI), a network of 31 banks and credit institutions, and Amazon, the largest e-commerce corporation in the world by market capitalization, will play key roles. The other participants are Spanish multinational CaixaBank, French payments platform Worldline, and Italian payments-focused bank Nexi.
Amazon will work on e-commerce payments, while CaixaBank will create a mobile application that mimics the processes customers will take to deposit virtual currency into their bank accounts or send it to other parties. EPI and Nexi will focus on point-of-sale retail payments, and Worldline will investigate offline payments between individuals.
Christine Lagarde, the president of the ECB, stated earlier this year that a digital euro is not supposed to replace cash but rather supplement it. Nevertheless, the role of digital currencies in the world has been becoming stronger ever since Bitcoin was created, and this role is expected to gain momentum even more in the future. Therefore, the question remains which central bank will become the leader of CBDC?
While there are many skeptics of CBDC, this move seems inevitable as the world is adopting digital tools. The time of cash might soon be gone, but it will undoubtedly take at least a few years to develop and adopt this technology. Cryptocurrencies may struggle hard in 2022, but they might also become beneficial from the combined use of CBDCs.