Today most of the leading central banks of the world are concerned about the efficiency of CBDCs for their countries. Several trials have been conducted in order to examine how effectively the Central Bank Digital Currency works and whether it will take part in the financial recovery after the pandemic lockdown. The idea of implementing citadel currencies was first introduced a year ago, back when nobody knew anything about deadly coronavirus and its impact. Now as the world has already seen the need to switch to the digital field in literally every sector, central banks are getting ready to develop CDBCS and integrate them into their national system with greater effort.
Some countries have already finished conducting research about CDBCs. The results in each case turned out to be positive and looking at them the European Central Bank (ECB) is hopeful that the digital Euro will be successful as well. The chief of the ECB, Christine Lagarde recently announced that the EU countries are prepared for implementing the digital euro and the main reason for this is increased crypto interests. The central bank believes that they have the potential to overcome existing challenges and develop a proper atmosphere for creating a digital euro which is probably a lifetime event because there hasn’t been a case of digitizing this kind of big currency like the Euro. This is why the governments of Eu countries are concerned about the outcomes, but the ECB proves the opposite.
Recently Christine Lagarde, the president of the European Central Bank published an article where she states that the digital euro can actually help the EU to recover and gain benefits, while cryptocurrencies which have been in use for so long carry great risks. The whole report is about criticizing Bitcoin and other cryptocurrencies and discussing possible risks that are related to the use of cryptocurrencies that are owned privately. Obviously, Legarde is not really worried about the crypto-related risks. Everybody knows that using cryptocurrency is not without accompanying risks but people have been widely using these digital currencies because of related advantages and mainly because it’s a decentralized currency. Indeed, cryptos are not controlled by the central bank or any other authority and this is why they are the main opponents to compete with the digital euro which will be regulated by the central bank.
The decentralization of Bitcoin and other cryptocurrencies is especially favorable for the online gaming industry participants. Cryptos give them opportunities to place bets while playing online games without worrying about their security and anonymity. Although in some countries using cryptos is still not licensed, central banks lack the power to detect the personal information of these players. Therefore, the popularity of bets on online games with cryptocurrencies is usually the main driver for politicians to hate on it. It’s especially the case with eSports. For years cryptocurrency wasn’t used in the eSports industry but now many eSports platforms tend to accept Bitcoin. The central bank believes that those platforms encourage players to switch to cryptos and this is why they want to reduce the use of crypto in order to make CBDCs look more convenient for eSports users and everyone who takes part in the online gaming industry.
Do stablecoins really pose a risk?
Christine Legarde tried to outline that using cryptos is not really convenient for its users in this article as she publicly referred to the downsides of cryptocurrencies. She stated that people can’t rely on crypto as it’s a volatile currency in nature and can’t maintain a stable value over time. However, this is not something new for Bitcoin users. Everybody knows that Bitcoin is one of the most volatile currencies and some people even make use of its volatility. It seems that the ECB chief also decided to attack technology giants because in this report she also targeted global stablecoins that are supported by big tech companies.
Specifically, she explained the disadvantages of Libra. It’s a blockchain-based payment system created by social media giant Facebook. This new stablecoin is still at the stage of examination and will be launched in January. But now Legarde tries to release every single opponent of the digital Euro and that’s exactly why she pointed out that stablecoins pose serious risks to the technological independence of the EU region. She believes that the main subjects of concern are data privacy and misuse of people’s personal information by these big technology companies. On the macro level, what she means is that if these stablecoins will be widely implemented, the financial stability of the whole of Europe will be threatened. Besides, probably it could trigger a big shift of bank deposits to stablecoins in case they will be used as a store of value and this will indeed have a negative impact on the operations and monetary policy of the central bank.
What does the digital euro mean for Europe?
Nobody has seen such a huge change in the financial sector of Europe as it will be implementing digital currency. A digital euro will be an electronic form of the national currency governed by the central bank. Nowadays switching to digital currency and making it accessible for all citizens is really important, considering today’s challenges. Even though the digital euro is closely related to cryptocurrency as both are digital currency forms, unlike cryptos, the ECB president expresses optimism about CBDCs.
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As she says digital euro will be a completely unique form of currency that will meet the demands of digital payments. The Digital euro will give the private sector opportunities to develop new businesses that would be based on digital euro services. Another reason why introducing digital euro is important for the EU countries is that it can be a symbol of the ongoing process of the European integration process and will take part in the unifying digital economies of the European countries.
Finally, we can say that the ECB has made great progress in the process of launching the digital euro. Currently, the examination by conducting CBDC trials continues but as Legarde said in November, probably the digital euro will be launched in the next two or three years and this will be the time when the EU starts thinking about making its financial sector fully digitalized.