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The digital euro will not bear interest and will be given legal tender status, according to an article by CoinDesk. The European Commission will present a legislative proposal for the digital euro on 28 June, but information about the digital currency was already leaked last week. People have long been very concerned about the privacy and programmability of the digital euro. What will the currency look like and are the concerns about the digital currency justified?
The investigation phase of the European Central Bank (ECB) has been going on for almost two years now. Since then, a lot of research has been done on the digital euro and more and more is becoming clear about the design of various central banks. For example, ECB Executive Board member Fabio Panetta has already hinted that there is likely to be a limit around €3,000 would apply to CBDC accounts in the Eurozone. A decision on the further implementation of the digital currency will be made later this year. Other central banks are also well advanced with the introduction of their digital currency. Nigeria and the Bahamas already have central bank digital money and countries such as China and Sweden are already well into the testing phase.
The ECB's timeline. (Source: ECB)
The European Commission's legislative proposal scheduled for June 28 was leaked last week, giving us a glimpse into the coin's design. It states, among other things, that no interest will be paid on the digital euro. In recent years, a lot of research has been done on possible interest on CBDC. For example, the German economist Ulrich Bindseil was already researching a design in which there was a tiered remuneration. In such a case, different interest rates apply to different brackets. For example, a different interest rate is charged on the first thousand euros than on the second thousand euros on an account.
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A graph from a study by the ECB. (Source: ECB)
The graph above shows what such a design would look like. The graph shows different interest rates in recent years. If the digital euro had existed before 2008, it is quite possible that the CBDC interest rate of the low amounts (the red line) would have been slightly below the deposit rate, while the interest rate on the high amounts (the light blue line) would have been at zero. In the period of unconventional monetary policy, the red line would have gone to zero, while the light blue line would have turned negative to boost spending and discourage large CBDC deposits.
None of that seems to be happening for the time being, according to the bill that prohibits interest on the digital euro. The digital euro remains a central bank debt and therefore does not pay interest. The infrastructure is managed by third parties, as banks and payment services ensure a much more efficient payment system.
The ECB also seems to rule out programmable money for the time being, CoinDesk writes. Yet this seems contradictory to the aforementioned limit of €3,000, says FVD Flevoland party leader Jelena Postuma in an episode of Blckbx; 'In order to maintain that limit, as a central bank you still need to have insight into the amount of money that people have in their accounts. In this way, complete privacy is not guaranteed. So there is still a form of control'. Jelena Postuma was also recently a guest on the channel of Holland Gold, where she delved deeply into the BRICS countries and the role of the dollar. Last week we also wrote an article about economist on Holland GoldZoltan Pozsar, who went into that in depth.
Incidentally, programmable transactions may be possible in the long run. This has already been investigated by the Swedish central bank, among others, where we wrote a report in Mayarticle about. Conditional payments can be desirable if they are initiated by the users of the money. According to the Swedes, these payments are more similar to Smart Contracts And a payment is only made if certain conditions are also met. For example, the central bank cites the purchase of a car as an example. The transaction will only be carried out if the customer transfers the correct amount and if the car is in the customer's name. Until then, the amount the customer transfers is frozen, so to speak. Only when the car is in the customer's name (or has been delivered) does the money appear in the car dealership's account.
In theory, it is possible to introduce tokens that guarantee complete anonymity. In such a case, a transaction with the digital euro would be more like a crypto transaction. This is not the design that the ECB is opting for, as it also wants to check that no criminal activities are facilitated with the digital euro. Therefore, account holders with the digital euro are likely to enjoy about the same level of privacy as they are currently used to with an account with a commercial bank. Cash therefore provides more privacy than the digital euro.
An important aspect of the new payment method is that offline payments must also be possible. This is the case if the payer is not connected to the internet. This is in contrast to online payments, which are often made through services such as PayPal or a payment app. The text that CoinDesk has been able to see is clear about the possibility of being able to pay offline; "The digital euro should be able to make both online and offline payments from the outset." The ECB, banks or payment services do not have access to privacy-sensitive information. According to the bill, this type of information is only visible to authorities who are tasked with detecting criminal activity.
The past few months have shown that commercial banks are still in a position to difficulties can hit. Central banks, on the other hand, cannot go bankrupt. Central Bank Digital Currencies can then act as a safe haven. The idea for a safe account was previously suggested, partly by the foundation Full-Reserve and the Ons Geld foundation. The deposit bank was not set up at the time, as the bank would have had to participate in the deposit guarantee scheme. Mahir Alkaya, MP for the Socialist Party, then came up with an idea for a Public Deposit Bank, but also his idea for a National Payment and Savings Bankno passage.
Now, the digital euro could eventually become this safe account. However, saving large amounts of money is not possible, as the limit is likely to be set at 3,000 euros. However, it may be the case that the digital euro will be a success and that any side effects can be successfully absorbed. In such a case, the limit can be increased slowly. We will describe these side effects in a future article. It will be interesting to see exactly what the bill will look like on June 28.
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