The Digital Euro


The Digital Euro

By Natasja Dul

In 2021 the ECB will decide whether or not it will introduce the digital Euro. This will be money issued by the ECB, as we are used to, but only in digital form. This digital currency is only supposed to be complementary and could be used for transactions in stores. It will in no way, shape or form replace the physical currency. Physical cash will stay available throughout the entire Eurozone.  

But then why is the ECB potentially introducing a digital currency? According to the ECB itself the main reason for this is that the digital currency is a fast, easy, efficient, and most of all safe way to facilitate the day to transactions people make. This form of digital currency will be public, as opposed to the private cryptocurrencies like Bitcoin, and will therefore not be unreliable in value. People who use the digital euro will enjoy the same level of confidence as they would have with physical bank notes and coins.  

For the average consumer, a new digital currency will not change much in practice. The ECB has already said that they do not want to be the facilitator and will most probably employ the commercial banks to deploy that role. This means that in practice, only the bank account that holds the digital euro will be with the ECB.  

The digital euro has both pros and cons. An alternative for cash money – the digital euro – will be able to reduce the dominant position commercial banks currently hold. This will eventually also lead to these bigger banks taking less (big) risks, because they are no longer sure the government will save them if that goes wrong. But this also brings a risk. If the digital euro gets too popular, it will become very easy for consumers to transfer all their money to digital money at the ECB, especially in times of financial crisis. A limit on the amount of digital money that can be on an ECB-account could potentially provide a solution to this problem.  

According to DNB research, approximately half of the Dutch people would use a digital euro. If the ECB decides that they will go through with this digital euro, The Netherlands would have great potential.