There’s a gap between Eurogrup’s plan and ECB’s about a digital euro

Autor: Article based upon analysis from Reuters Breakingviews
2 min

Stronger signals on creating a digital euro could come only starting with the autumn this year, as the Eurogrup said on Monday, when the European Central Bank (ECB) reviews the outcome of the investigation phase on this issue.

On this basis, only then the ECB Governing Council is to decide whether to move to a realization phase, as developing a digital version of the world’s second largest reserve currency carries risks for those who supervise monetary stability.

The Eurogroup considers that the introduction of a digital euro as well as its main features and design choices requires political decisions that should be discussed and taken at the political level”, was a key phrase issued by the euro zone finance ministers.

That said, expansionist politicians could get ahead with themselves and step over central bankers that might have different ideas about the conditions of creating a digital euro.

Back in 2019, when the idea of an electronic currency appeared on the ECB’s radar, such an instrument should have had the same reserve backing as its physical equivalent.

That was mainly motivated by Frankfurt’s need to control the process, since ”the design and introduction of a digital euro should not impair the ability and the independence of the European System of Central Banks”, as issued by the Eurogrup on Monday.

As Reuters states, at best, a digital euro could bring more citizens into the banking system, particularly those who do not have enough money for traditional financial services products.

While making tipping and street vending more flexible and safer, a digital euro could also prompt citizens to empty out their bank accounts and put their own savings, as well as the banking system, in jeopardy.

These kinds of risks made ECB’s Executive Board member Fabio Panetta say the digital euro is intended to be a method of payment but not a store of value, requiring caps on holdings and payment size.

The Eurogrup agreed on Monday with the ECB on the need to preserve citizen privacy and keep transactions small, but it also pushed for the ECB to allow the digital euro to be used internationally.

”There would for example be no restrictions in the types of goods and services to be purchased, or restrictions in time when a digital euro can be used”, as their statement carries.

Of course, central bankers would prefer to limit the digital euro to the EU at first, to make sure that a digital currency does no harm.