Bank AI

Spain’s central bank, Banco de España, joins a host of European banking institutions preparing its customers for the potential benefits of the EU’s CBDC – the digital euro.&nbsp; 
In a <a href="https://www.bde.es/wbe/es/noticias-eventos/blog/el-euro-digital--que-es-y-que-nos-aportaria.html#:~:text=El%20euro%20digital%2C%20en%20definitiva,el%20usuario%20es%20la%20privacidad.">recent blog</a>, the Spanish central bank shares all the potential benefits of introducing a central bank digital currency (CBDC). It further explains the nature and uses of the European Union’s potential CBDC.&nbsp; 
<blockquote> 
 As more and more people are choosing to pay digitally, we want to offer a digital form of central bank money with the same guaranteed value as cash.That’s what a digital euro would be.Why would it be so important for Europe? Find out more <a href="https://t.co/uNeB5sZtHa">https://t.co/uNeB5sZtHa</a> <a href="https://twitter.com/hashtag/digitaleuro?src=hash&amp;ref_src=twsrc%5Etfw">#digitaleuro</a> <a href="https://t.co/M7EMpWsTrQ">pic.twitter.com/M7EMpWsTrQ</a>
 — European Central Bank (@ecb) <a href="https://twitter.com/ecb/status/1717103712651358235?ref_src=twsrc%5Etfw">October 25, 2023</a>
</blockquote> 
<h2 id="spanish-central-bank-prepares-customers-for-potential-cbdc">Spanish Central Bank Prepares Customers for Potential CBDC</h2> 
The bank explained what a potential digital euro offers and what advantages it brings: 
<blockquote> 
 “Since their introduction in January 2002, euro banknotes and coins have been the representation of our single currency and the only means of public payment available to all citizens of the eurozone. The physical format of cash, however, does not allow us to exploit all the advantages offered by the growing digitalization of the economy and society. This has led the Eurosystem to analyze the possibility of issuing a digital euro as a complement to cash.” 
</blockquote> 
Last year, the central bank <a href="https://cryptodaily.co.uk/2022/12/spains-central-bank-to-experiment-with-wholesale-cbdc">announced</a> that it would experiment with CBDCs and undertake a study to determine to what extent a CBDC can adapt to the “needs and demands of an increasingly digital society.”&nbsp; 
The Eurosystem <a href="https://www.ecb.europa.eu/press/pr/date/2021/html/ecb.pr210714~d99198ea23.es.html">launched the digital euro project</a> in <a href="https://cryptodaily.co.uk/2021/09/ecb-officially-starts-to-investigate-digital-euro-development-begin-2-years">2021</a> and recently announced that it would <a href="https://www.ecb.europa.eu/press/pr/date/2023/html/ecb.pr231018~111a014ae7.es.html">move forward</a> with the next phase of the project. The preparation phase of the digital euro project will start soon and will last two years. The European Central Bank explained: 
<blockquote> 
 “The next phase of the digital euro project – the preparation phase – will begin on November 1, 2023 and its initial stage will last two years.&nbsp;It will include finalizing the development of the operating rules of the digital euro and the selection of providers who could develop the platform and infrastructure of a digital euro.&nbsp;It will also involve testing and experimentation to develop a digital euro that meets both the requirements of the Eurosystem and the needs of users in terms of, for example, user experience, privacy, financial inclusion and environmental footprint.&nbsp; 
 The ECB will maintain contact with the public and all stakeholders during this phase.&nbsp;After two years, the Governing Council will decide whether to move to the next stage of preparations in order to make arrangements for the possible future issuance and introduction of a digital euro.” 
</blockquote> 
Christine Legarde, president of the ECB, said: 
<blockquote> 
 “We have to prepare our currency for the future. We think of the digital euro as a digital form of cash that can be used free of charge for all digital payments and that meets the strictest privacy levels.&nbsp; 
 It would coexist with physical money, which will always be available, leaving no one behind.”&nbsp; 
</blockquote> 
<h2 id="potential-benefits-of-digital-euro">Potential Benefits of Digital Euro</h2> 
The Spanish central bank noted key advantages a CBDC could offer, including the possibility of offline payments using the digital euro. It highlighted its level of privacy, which it equated to cash. The authors also point out that the digital euro will make user data visible to their financial institutions, not the CBDC infrastructure provider, Eurosystem.&nbsp; 
In its blog, the central bank stated: 
<blockquote> 
 “Currently, banknotes and coins are the basis that supports citizens’ confidence in the monetary system. This confidence comes from the certainty that, at any time, we can obtain cash and use it to pay anyone or any business in the eurozone easily, safely and at no cost. Therefore, guaranteeing access to money issued by the central bank in the digital environment, while preserving these basic characteristics of cash, would contribute to maintaining that confidence in the currency in the new environment.” 
</blockquote> 
It added: 
<blockquote> 
 “The digital euro would be accepted throughout the eurozone and offer free and easy-to-use basic services.”&nbsp; 
</blockquote> 
When discussing the privacy of a digital euro, the bank said: 
<blockquote> 
 “The level of privacy of the&nbsp;offline&nbsp;modality would be like that of cash, since only users could see their payment information.&nbsp;In the&nbsp;online case , the experience would be equivalent to what we have today with electronic payments: users would access the digital euro through financial institutions and only these would have visibility over their personal information. The Eurosystem would process payments, but without knowing who is behind each transaction. 
</blockquote> 
The central bank continued to say the “digital euro would be based on a public and European infrastructure that would strengthen the European financial system and make it more independent from foreign alternatives.”&nbsp; 
<h2 id="benefits-of-cbdcs-overall">Benefits of CBDCs Overall </h2> 
To understand the benefits of CBDCs, we must <a href="https://cryptodaily.co.uk/2022/03/there-are-two-kinds-of-cbdc-wholesale-and-retail-but-how-are-they-different">differentiate between retail and wholesale CBDCs</a>. <a href="https://cryptodaily.co.uk/2023/09/unpacking-central-bank-digital-currencies-cbdcs">Wholesale and retail CBDCs</a> differ mainly in terms of accessibility. 
Wholesale CBDCs are designed to settle interbank payments. It would be used by banks that need to store deposits in a central bank. Wholesale CBDCs will be restricted to financial institutions and may be used in addition to, or in replacement of, real-time gross settlement systems (RTGS). This class of CBDC will not be accessible to citizens.&nbsp; 
Retail CBDCs, on the other hand, act similarly to cash and will be issued to the general public. Retail CBDCs, like cash, will allow people to send and receive money, pay for goods and services, and receive payments and grants directly from the government.&nbsp; 
The benefits of CBDC are endless. As digital versions of fiat currencies backed and issued by central banks, CBDCs address the challenges of digital payments and the proliferation of privately issued currencies.&nbsp; 
One of the critical benefits of CBDCs is their ability to provide a reliable and secure means of digital payments and remittances. CBDCs can be used for online and offline transactions and integrated into existing payment infrastructure.&nbsp; 
CBDCs further have the potential to create an integrated and interconnected financial system. CBDCs offer cost efficiencies by reducing the hassles often associated with handling physical cash, and retail CBDCs can reduce costs by removing counterparty risk.&nbsp; 
One of CBDCs’ main benefits, however, is their ability to provide financial inclusion to the unbanked or underbanked. Traditional banking services are often unavailable to people in developing economies due to a lack of infrastructure and the high cost associated with banking services. In this instance, CBDCs provide a cash alternative and may make it easier for people to access financial services and participate in economic activities.&nbsp;&nbsp; 
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Bank of Spain Highlights Potential Benefits of Digital Euro

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