The pandemic has significantly affected the global economy, consequently creating an unstable situation for national currencies. In such a situation, states and international organizations are looking for methods to overcome the upcoming currency crisis. They are also trying to solve the problems provoked by the crypto-world. One solution to this problem is the introduction of digital currencies. We will look at the situation in more detail in the example of the EU.
In the European community, there have long been thoughts about the need for a digital euro. In 2020, the European Central Bank published a report on this topic, and in April of this year, the EU launched a formal consultation on the introduction of the digital euro.
The concept of the digital euro presents it as an electronic publicly available form of money issued by the European Central Bank and the eurozone’s national central banks. It is intended to be a simple, fast, and secure means of payment. Also, the digital euro will not replace cash, but rather will complement this payment method.
In general, the creation of a digital currency falls within the framework of the EU’s digitalization policy. Therefore, the main objective of the introduction of the digital euro is to meet consumer demand for electronic payments. This can be achieved by bridging the gap between private sector cryptocurrencies and standard payment methods. The digital euro will give an advantage to EU residents because it will be within the jurisdiction of the union, rather than being controlled by global players such as Visa and Mastercard.
The digital currency would also help solve the problem of tracking illegal activity during transactions. The EU, therefore, is acquiring a new tool to prevent money laundering and tax evasion. Right now, this is done most often through cryptocurrencies.
According to the ECB, the force that will be able to shift citizens’ demand away from cryptocurrencies toward the digital euro is its security.
The digital currency will resemble an online bank account or wallet, which will be held at the ECB but not at a third-party financial institution. This is important to know because the ECB cannot run out of euros. Because it is an issuer, that makes it much safer than its commercial counterparts.
Thus, the digital euro is a necessity for such an economically integrated system as the EU. Not only will it be able to meet the population’s level of demand for electronic payments, but it will also be able to circulate them securely. Such a currency would also be a way to counter illegal payment activities.