The digital euro

Particularly since 2018 cryptocurrencies have been experiencing unseen growth. Yet there are not the only attractive products present on the market today. Among others, there are NPLs which represent a series of “financial instruments”. Many economists and investors are greatly interested in them.

However, we will focus on another subject: the use of state-created virtual currencies issued by national banks as an alternative means to cash or cryptocurrencies. The first states, China and Sweden, forecast an unofficial issuance of the e-currencies in 2021 and 2022. Another country to join the race might be the US forecasting the digital dollar issuance already in 2021.

Characteristics of Digital Euro

The European Union is also preparing to issue its own e-money. The initiative is aimed at replacing the use of cash altogether and gaining greater control over financial crime prevention. The new digital euro is supposed to have the same financial quotation on the currency market as euro banknotes have. It will have the same operational area meaning Europe and Eurozone countries. The difference is that the currency will be centralized and permanently monitored by the ECB and the national central banks. While establishing the idea of the digital euro, the European Parliament aimed at creating a new instrument of preventing an economic monopoly of private individuals because they determine rules and conditions of currencies and exchanges outside of any regulation. The digital euro project is to start in the middle of 2021.

Mainly, the cryptocurrencies and the state digital currencies differ in the initiatives they preach. The path of the digital euro is to create greater transparency, exclude volatility by keeping the price value the same, and mitigate the financial risks connected with the use of cryptocurrencies.

Opportunities

The establishment of the digital euro brings the following opportunities:

  • Shorter timing of financial transaction exchange between banks and customers;
  • Reduced management and transfer costs by excluding the intermediary figure (the Central bank will manage all transactions);
  • Ecological saving by not producing banknotes;
  • Immediate customer support;
  • Greater control by authorities and traceability;
  • Digital user recognition;
  • Remote customer due diligence.

Disadvantages

  • Insufficient customer inclusion – some citizens do not have access to digitalized services and innovative tools (growing inequality gap);
  • Absence of uniform legislation;
  • Increased risks of cybercrime and financial crime.

Does the question of digital currencies catch your attention but you still need professional advice on this topic? Please get in touch with our office agents in COREDO.