Digital Euro: What Is It and How Will it Work?

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Today Wealth Network Limited tells you all about Euro Digital, an attempt at digitalization of the European economy and innovation in the retail space.

In July 2021, the European Central Bank (ECB) gave permission to commence a multi-year project for the creation of a digital version of the euro, the currency of the 27-nation strong European Union.

The investigation will involve how the currency, also known as a Central Bank Digital Currency (CBDC), should be designed and distributed, and what impact it will have on the market. It will also involve the discussion of changes in EU legislation that might be required with the advent of such a digital currency.

Commencement of the Investigation

The investigation will commence in October 2021 and will continue for about two years, after which time, the digital currency will need to be approved by the ECB’s governing council. If approved, various options will be tested along with consultations with various banks and financial institutions in order to develop the best possible technology and ease of payment.

The digital euro will be worked on for at least another three years before its final launch, in addition to the time required for EU bloc member states to make the necessary legislative changes.

What Is a Digital Euro?

According to the ECB, “a digital euro would guarantee that citizens in the euro area can maintain costless access to a simple, universally accepted, safe and trusted means of payment”.

Most payments nowadays are done digitally, whether it be via debit or credit cards or electronic funds transfers (EFTs). An EU Central Bank Digital Currency (CBDC) would just be another form of digital payment. Just like its physical note and coin counterpart, it would be issued by the Eurosystem, which includes the ECB and national central banks.

What Is the Purpose Behind Digital Euro?

The proposed virtual version of the Euro is a part of global central banks’ push to meet the demand from consumers for electronic payment options in a bid to catch up with private sector digital currencies, like Bitcoin.

The ECB wants to provide EU bloc citizens, who no longer wish to use cash, with a digital payment option and avoid the need to rely on other digital means of payment that are controlled outside the jurisdiction of the EU, like mega payment processors: Visa and Mastercard.

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