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  • Saanya Amalean

Digital Friday >>> A Digital Euro. Is it a possibility?

Updated: Jul 19, 2021

The European Central Bank (ECB) has given the go-ahead on Wednesday to create a digital version of the Euro.

With the rise in private forms of cryptocurrencies such as Bitcoin, the ECB is now venturing out to make the shift away from cash. The digital euro will essentially be the electronic equivalent of banknotes and coins, and will most likely be some form of a digital wallet that euro zone citizens can keep with the ECB.

The most important factor to note about this initiative is that the digital wallet will be held directly with the ECB instead of at a commercial institution, instantly making it a safer alternative. As the digital euro would be a direct claim on the central bank, there is no liquidity risk, market risk or even credit risk. There is also no likelihood of its value being in a state of flux like it usually would be with private digital currencies.

The introduction of the digital euro will also amp up competition with foreign card companies such as Visa and Mastercard, as well as digital payment services such as PayPal.

One digital euro would be equivalent to one euro which means, it is still bound to the physical eurozone currency. There will most likely be a cap on how much an individual can earn as well.

The fundamental challenge could be convincing individuals to switch to a new method of payment that hardly differs from existing ones. However, the e-euro may rise up against others in terms of its safety.

Potential users can expect its launch within the next five years, with the ECB planning to finalise its design in two years, and will work on its implementation for an additional three years.

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