The digital euro has frightened Slovaks, but cash will not kill. “Cryptomenal paradises” will emerge around the world

Among the world’s major economies, China is clearly one mile ahead of the development of its own digital currency. Asian giant its digital yuan not only used, but it also has the means to expand it very quickly in the country.

However, along with the advancement and advent of the digital state currency in China, reducing or even criminalizing cryptocurrencies and their extraction goes hand in hand. Proponents of cryptocurrencies therefore ask whether similar steps await us over time.

The European Central Bank has laid the cards on the table, the digital euro is in preparation

The European Central Bank (ECB) is not hiding from the development of its own digital currency, and last week the Governing Council of the ECB officially launched research phase of the digital euro project.

This will take two years, during which the research groups will address the main issues of its design and distribution, which are currently still not at all clear, as will the final decision on the issue of the digital euro.

The ECB has also stated that the digital euro will not be a substitute, but only a supplement to cash according to its president Christine Lagard’s goal is to ensure that citizens and businesses in the digital age continue to have access to the “safest form of money,” central bank money.

According to the ECB, the digital euro must meet the needs of Europeans and at the same time contribute to the prevention of illegal activities such as money laundering or terrorist financing, without any adverse effects on financial stability and monetary policy.

On the table is an unmixed package of measures, changes and innovations that have the power to dig into the financial system of the euro as we know it. At present, everything from the form of the digital euro, the involvement of commercial banks or the new powers and opportunities it will bring to central banks is questionable.

We therefore discussed the development, benefits and risks of the digital euro with analyst Juraj Karpiš, who is a co-founder of the Institute for Economic and Social Analysis (INESS). In a short interview, he explained to us the benefits that the ECB’s digital euro will bring, but also its risks and the possible consequences of the expansion of national digital currencies on the cryptocurrency market.

What will you learn in the interview?

• How the digital euro differs from traditional cryptocurrencies and non-cash money
• Why the digital euro is actually being created and what is the motivation for central banks
• Which means the advent of the digital euro for commercial banks
• Is El Salvador and its adoption of bitcoin an important step
• Why in the future so-called “Cryptomen paradises”

Could you describe what the digital euro is and how it differs from “traditional” cryptocurrencies?

The digital euro, or rather his idea, is a continuation of the trend in central bank policy that emerged after the financial crisis in 2008. After the crisis, central banks felt that they needed to have more control over the financial system.

The established banking system, ie the central bank and commercial banks, has not developed much in the last 50 years, but this has changed the onset of cryptocurrencies.

They have shown people that it is possible to make digital money without the need for a certain central authority and at the same time make immediate payments efficiently. Thus, central banks are worried that their biggest “clients” will switch from classic fiat money to cryptocurrencies, and therefore they are trying to put something like the digital euro together.

However, unlike most cryptocurrencies, the design of the digital euro, or any “state cryptocurrency”, is fully centralized and does not offer benefits like some cryptocurrencies.

What is the difference between the digital euro and “traditional” non-cash money?

Today’s money, respectively the euro, consists of two components – cash (about 10%) and electronic money (90%), which, however, are not issued by the central bank, but are created by commercial banks and the central bank only in a certain way (eg minimum reserves, editorial note) regulates the creation of this “virtual” money.

However, the digital euro is coming to this system, which is a way for the central bank to create electronic money that will be used directly by end-users (the public) and thus “bypass” commercial banks.

Why is the digital euro actually being created? So isn’t it just the ECB’s effort to “compete” with cryptocurrencies with its own solution?

In my opinion, there are two motivations for why central banks bring their own digital currencies. The first is exactly what you are saying and what I mentioned, and thus creating a certain alternative to cryptocurrencies.

However, I do not think that this is entirely fair competition, and for example, the next step that I think China will take after the full launch of the digital yuan is a kind of criminalization of other private alternatives. We can already see a certain part of these measures, such as the mining ban or various financial transactions with cryptocurrencies.

However, the second motivation does not stem entirely from cryptocurrencies, and central banks are also monitoring the will to get their entire money supply under control by developing their digital currencies. So far, they only have cash directly under control, but anonymous transactions can also be made with it.

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However, when the central bank has control of all the money supply through digital money, it can take measures that were previously unimaginable, such as imposing negative interest on deposits without fear of people running out of cash. Of course, there is no need for such a thing to happen.

Does the advent of the digital euro mean a gradual end to cash and “anonymous” transactions?

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