This week the European Central Bank has spelled out its strategy for the euro to try to gain ground on the dollar as the hegemonic currency. One of the pillars is the digital euro. This issue was one of the main topics addressed in the El Confidencial-Mapfre Economic Observatory. The participating experts agree with the ECB in stressing the importance that the deployment of the digital euro would have.

‘The digital euro is based on strategic autonomy’, says Judith Arnal, senior researcher at the Center for European Policy Studies and the Elcano Royal Institute. Currently, Europe's domestic payments market is dominated by large US multinationals, especially Visa and Master Card, and is highly fragmented. The digital euro would allow transfers within the eurozone to be made immediately and free of charge, and with central bank technology.

It would be a kind of Bizum, but would operate at EU level. ‘The digital euro project is going to be completed because it is a political decision,’ says José Manuel González-Páramo, president of European DataWarehouse and member of the ECB's Executive Board from 2004 to 2012. In his opinion, it is a good system to break the fragmentation of the payment system, which is fundamental in an economic area.

The system would be simple: users can buy digital euros, offered directly by the ECB, and use them in a virtual wallet as if it were their normal current account. One of the key issues for the euro bank and the European Commission itself is to design user-friendly applications to achieve real penetration.

The success of the digital euro depends, to a large extent, on its mass use by users. Otherwise, it will fail to achieve the strategic autonomy desired by the authorities.

‘The digital euro is a very good solution in the short term, which will waterproof us against the effect of the penetration of other types of financial assets, currencies or international cryptocurrencies’, explains Gonzalo de Cadenas-Santiago, deputy managing director of Mapfre Economics.

The ECB still has important questions to answer that the experts at the Economic Observatory raise. The first is the difference between bank money and the digital euro. Bank money is created by the intermediation of banks, so it is not directly backed by the ECB, as the digital euro would be. In the event of a future financial crisis, savers might prefer to accumulate euros in their ECB account rather than in banks, thus creating risks for the latter. This is why it is essential to put support for the digital euro on an equal footing with that received by the rest of the money supply.

The second, closely related to the first, is the amount of digital euros that each user can accumulate. The idea is not that the digital euro should be a savings resource, but a payment instrument. Hence, limits will be relevant.

The European Central Bank is completing its period of designing and testing the digital euro, before sending its conclusions to the European Commission to start the regulatory development of the currency. This preparatory phase will be completed by the end of 2025 and the ECB's expectation is that it will be operational as soon as possible. 2026 is an ambitious date, but not impossible.

Source: El Confidencial