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According to media reports, European policymakers are divided over whether a central bank digital currency (CBDC) is necessary for the region. While some argue that cashless payments already exist, supporters of the CBDC project argue that Europe needs a payments system that is locally controlled.&nbsp;



The supporters of the project have also implied that with the declining use of cash, which currently plays an important role as a stabilizing force for the financial system, the consumer would turn to other payment options. The consumers will go to payment options like stablecoins, cryptocurrencies, and CBDCs issued by other sovereigns.



Fabio Panetta, the European central bank (ECB) executive board member overseeing the digital Euro project, briefed the media that the region needs its own “risk-free asset” that can compete with other payment systems and the only option is for the ECB to issue its own digital currency. According to Panetta:




If the sovereign doesn’t offer this, then others will take its place.




Currently, non-European companies like Visa, Mastercard, and Apple hold a major market share of digital payments in the region. This has concerned many lawmakers that the eurozone is overly reliant on these companies for its payment needs.



Additionally, no single payment system is universally accepted across the eurozone which is a gap the digital Euro intends to fill as stated in the media reports. Panetta said:




Digitization of society means everyone wants to pay digitally. But there is no single digital means of payment you can use everywhere in the euro area. Visa or Mastercard are controlled by non-European companies and are widely used, but many shops do not accept them. Even cash is not accepted everywhere.




As per the sources, the responses to the digital Euro from the banking sector so far have been lukewarm. Additionally, the lawmakers opposing the project have raised concerns over its necessity and whether its benefits are worth the risks to financial stability. Many have opined that a digital Euro payment system would be redundant as digital payments are already a reality through commercial banking. The new system will potentially add further “complexity and inefficiency” to payments.



Meanwhile, bankers are worried that the digital Euro will increase the risks of bank runs as it will give consumers a “safe haven” to move their money to during times of crisis. This is a shared concern with the European Banking Federation.&nbsp;



In March, the EBF raised concerns over the “significant risk” of bank runs due to the digital Euro which caused lawmakers to consider imposing limits on digital Euro holdings to combat the issue.



Furthermore, sources reveal that the digital Euro will be distributed mainly through commercial banks and will most likely be held in a separate app that is operated by the bank. Hence, these deposits would be no different from traditional cash deposits at the banks in principle.



Notably, this has triggered worries in the banking sector that banks themselves will have to bear the costs of the project as the ECB intends to make basic payments free for all consumers on top of making banks in charge of the deposits. The EBF has suggested setting aside public funds to support the digital Euro to ensure banks are not burdened by unnecessary costs.



From their individual stances, it is pretty clear that the ECB is in favor of having a digital Euro whereas the EBF seems reluctant. In addition, the ECB also <a href="https://news.todayq.com/news/ecb-publishes-two-documents-briefing-its-plans-for-digital-euro/">published</a> two extensive documents revealing their plan of action for developing the digital Euro. Not just that, Christine Lagarde, president of the European Central Bank (ECB), <a href="https://news.todayq.com/news/ecb-president-emphasizes-the-need-for-cbdc-adoption-for-central-banks/">said</a> that central banks might lose relevance if they fail to adopt CDBCs.&nbsp;



On the issues of privacy that flared up around the adoption of CBDCs, she promised the masses with complete privacy. However, sometime back, a video of her <a href="https://news.todayq.com/news/ecb-presidents-comments-on-digital-euro-spark-debate-over-control-and-security/">talking</a> about CBDCs again raised concerns of control and security. It will be interesting to see how the institution proceeds with the CBDC issuance amid all these concerns.&nbsp;
© Todayq News

European entities and lawmakers are divided on the issuance of Digital Euro

Todayq News

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