How will citizens within the eurozone benefit from a digital currency? Euronews unpacks this question and more in the latest edition of Real Economy.
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The European Commission is proposing the digital euro, a virtual version of the currency which will be issued by the European Central Bank, to be used for free alongside cash in the Eurozone.
Paying for services or goods with cash instead of debit or credit cards has long been regarded as a simpler process due to faster transaction speeds, reliability and fewer related costs.
However, the first-ever study conducted by the European Central Bank on cash usage within businesses in 2021 showed that companies preferred consumers to pay with cards (including contactless) to cash (53 per cent to 23 per cent).
In contrast, the second study on the payment attitudes of consumers in the Euro area (SPACE) revealed that Europeans preferred to pay with cash in the eurozone in 2022 rather than a card (59 per cent to 34 per cent, although there was a notable decrease in 13 per cent in the frequency of cash payments from 2021).
So how will a digital euro cater to both business owners and consumers across the eurozone? Ultimately, it will give present consumers a choice and ensure the survival of cash for the future.
Is there a difference between digital currencies and cryptocurrencies?
The digital euro currency will be controlled by the European Central Bank, unlike cryptocurrencies which are decentralised, the ECB will set the currency's value, ensure its stability and prevent it from collapsing.
Essentially, the digital euro will serve as a digital version of physical euro notes and coins.
It will have exactly the same value even across borders. As legal tender, European citizens will not need a bank account to store it, the currency could instead be held in a digital wallet.
When it's fully deployed, traders will have to accept the digital euro just like they do cash today.
What are the advantages of using the digital euro?
The digital euro will be just like cash but in a digital format, except the euros used will belong to the central bank. Contactless or cashless payments today extract euros from a private or corporate account to pay for services or goods, these units are not owned by the ECB.
Central banks fear they are losing the stability that cash provided their financial systems. However, a digital equivalent of cash would help support the sovereignty and contingency of that system. While cash was the preferred method of payment last year, the value of euro payments was lower than card payments (42 per cent to 46 per cent).
According to ECB economists, everyday payments will be smoother with the digital euro.
If this digital currency is owned by the ECB, will consumers have unlimited access to funds?
To start, the ECB expects it will issue consumers small amounts, those who avail of the digital currency will not be able to download more than €3,000 or €4,000 into their digital wallets, however, the exact technicalities of payments and the size of payments have yet to be defined by the ECB.
But what about privacy, security and usability?
One of the main concerns that consumers have is privacy, a concern the ECB recognises. The central bank says users will be able to make small payments anonymously.
At present, approximately 120 central banks around the world are working on creating digital versions of their own currency.
The European Commission is currently looking to establish the digital euro's legal framework. Details on the currency's design and implementation are expected to be released by the ECB later in 2023.