Will the Digital Euro Get Approval from the European Parliament?

Nowadays, digitalisation in almost every field also expresses itself in payment methods. The growing demand for fast and secure payments has led many people to switch away from cash in favour of new digital payment methods. In this case, governments aim to preserve the role of public money and maintain confidence in currencies.

As a brief, the background is as follows: In recent years, the increase in the use of cryptocurrencies has raised the risk of reducing the effectiveness of the European Central Bank's (Bank) monetary policies. Accordingly, the project of issuing a "digital euro" in July 2021 was put on the agenda by the Bank in order to strengthen the monetary and payment systems. The digital euro refers to the electronic version of the euro banknotes and coins currently in use. Moreover, the digital euro was intended to enable individuals and private companies to hold accounts directly with Bank for the first time.

One of the curious issues was what the legal status of the digital euro would be and whether the digital euro would replace cash. In the statement made by Bank; it was stated that the digital euro complements cash, and that cash will continue to exist in European Union countries using the euro currency. In addition, it was intended to provide the digital euro with the status of a legal payment instrument.

In the report published by the European Parliament dated 19 April 2023 (Report), the issue of Central Bank Digital Currency (CBDC) was discussed. CBDC refers to digital currencies issued by the authorised central bank in accordance with the applicable legislation.

Report contains details on the eagerly awaited regulations in EU and provides insights into the digital euro project. Report includes ten key issues that the digital euro may possibly face, and under each heading, the importance of the issue, whether it has been sufficiently researched, and what should be done if it has not been adequately analysed.

Among the noteworthy determinations in Report are as follows:

• In Report, it was stated that with the introduction of the digital euro, Bank adopt the mission of offering a new payment instrument in competition with other payment service providers.
• The digital euro does not stand a good chance of being recognised in today's highly diversified, competitive, innovative and rapidly developing retail payment industry.
• Banks in EU manage the majority of retail payments and conduct their transactions through deposit accounts. In this context, a competitive environment will develop as the digital euro will be considered as an alternative to banks' deposit accounts.
• It was stated that the digital euro should not be achieved to the extent of harming the commercial banking sector, since the digital euro would offer a less risky alternative to bank deposits could trigger negative consequences during a potential crisis.
• The digital euro is unlikely to increase financial inclusion in EU, although it may contribute to solving the long-standing problems of high costs and delays in cross-border payments.

Briefly, Report concludes that Bank should pursue its research on the digital euro. However, the digital euro project should not actually be launched until new facts emerge in the future that will have different implications. In addition, it is also stated that the risks and unpredictability of the initiative are stronger than the arguments put forward in support of the digital euro.

The digital euro will completely change the dynamics in the relevant sector. Accordingly, the decision to be taken by the European Parliament highly significant.

You can reach the full text of Report published by the European Parliament here.

The Turkish version of this article is available on Dijital Euro Avrupa Parlamentosu’ndan Onay Alacak Mı?

Tagged with: Gökçe, Görkem Gökçe, Elif Aksöz, Fintech