5 frequently asked questions about the digital euro and their answers

The future launch of the digital euro is currently one of the most important monetary projects in the euro zone, since the advent of the single currency in 1999. To ensure its success, the European Central Bank (ECB) carries out currently many in-depth studies and research. Its efforts are supported by the European Commission. The organization proposed, on June 28, two regulations aimed at defining a legislative framework for this central bank digital currency (CBDC). This historical event in many respects offers again the opportunity to take an interest in the debate on the digital euro and to better understand this concept. In this article, we will answer five frequently asked questions about the digital euro.

1. What is the digital euro?

The digital euro is a project led by the European Central Bank whose goal is to create a digital version of the euro, the common currency of the euro zone. This “digital currency” will be issued and controlled by the ECB, and will have the same properties as traditional currency.

It is important to note that, contrary to what some might think, the digital euro is not a cryptocurrency. It is not based on decentralized blockchain technology and is not subject to the fluctuations in value often associated with cryptocurrencies.

The implementation of this digital currency should make it possible to offer citizens and businesses a secure and efficient alternative to physical cash and existing digital forms of the euro. The latter could in particular use it to make secure, transparent and instantaneous payments.

2. Does the digital euro replace cash?

The answer is no. The digital euro does not replace cash, i.e. physical cash. It simply comes as a complement in order to offer European users a secure digital option for their transactions.

Moreover, it will not be a programmable currency, that is to say limited to certain expenses such as the payment of taxes. It is therefore the user who will decide whether or not to pay with this currency.

3. Why would European users want to use such a currency within the Eurosystem?

In a world where the demand for secure and efficient electronic means of payment is constantly increasing, the digital euro presents itself as a major innovation. It could indeed offer many advantages to European users:

• Ease of use: users could make instant payments, whether online or in person, without having to use cash or make a bank transfer,
• Reduced transaction costs: this could be really beneficial for cross-border payments, where exchange fees and associated costs are often high,
• Enhanced security and privacy: Combined with features such as cryptography and blockchain technology, the digital euro could help protect users from the risks of currency counterfeiting and prevent fraud,
• Financial inclusion: Digital currency would enable more people to access financial services, especially in regions where access to banking infrastructure is limited.

Finally, the use of this digital currency would improve transparency and allow users to better manage their finances thanks to detailed and accurate transaction histories.

4. How will the digital euro work?

The precise functioning of the digital euro has not yet been fully defined, it is still the subject of many in-depth studies and analyses. However, based on the explanations provided by the ECB and current discussions, here is a general description of how this digital currency could work:

• Issuance and reserve: it would be issued by the ECB and would be based on secure technology, probably associated with blockchain technology,
• Digital Wallets: Users would need to have a secure digital wallet to manage and store their digital Euros. This could be provided by the Central Bank or by financial service providers,
• Conversion: this is a very interesting point. It would be exchangeable at a fixed conversion rate with the existing physical euro,
• Transactions: It could be used to make instant transactions through mobile apps, payment cards or other electronic means. Payments could be made peer-to-peer or from merchants that accept digital euro.

Finally, in terms of security and confidentiality, the digital euro would be built with reliable measures such as cryptography and identity verification mechanisms and data protection protocols. This should protect the privacy of users as well as their digital financial assets.

5. What are the risks associated with the adoption of the digital euro?

Despite the explanations provided by the European authorities, the digital euro project presents many risks that do not escape the eye of financial experts. We are going to introduce you to two of them.

Competition with existing currencies

The first risk presented by the digital euro is that of monetary security. If European citizens turned massively to this new form of money, they would end up depriving retail banks in the euro zone of liquidity.

This could happen if people start to see central bank digital money as more secure than money created by commercial banks. It could lead to the disappearance of banknotes, cash or checks in euros and immobilize capital.

Confidentiality and privacy

The digital euro is inherently less anonymous than traditional currency. Therefore, the European data protection authorities warn about respecting the privacy and confidentiality of the data of the users of the future digital currency of the ECB.

In fact, transactions made with the digital euro could involve personal information such as payment details, user IDs and transaction histories. It is therefore important to put in place measures to prevent this data from being misused.

Conclusion

In conclusion, the digital euro, while representing a notable advancement in digital currency, raises significant concerns for cryptocurrency advocates. As a digital central bank currency (MNBC), it remains under the control of the European Central Bank, which goes against the ideal of decentralization and independence that is at the heart of the philosophy of cryptocurrencies.

Additionally, the digital euro could potentially infringe on user privacy, a major concern in the crypto world. Transactions carried out with the digital euro could involve personal information, depending on the confidentiality and security measures put in place by the ECB. In sum, despite its potential benefits, the digital euro appears to compromise the core values ​​of decentralization and privacy that are dear to the cryptocurrency world.