Fiery Debate on Digital Euro: Experts Diverge on Key Topics

• Implications of a Digital Euro Discussed by EU Lawmakers
• Contrasting Opinions on Central Bank Digital Currency
• Concerns over Holding Limits and Privacy
• The Future of Cash and Crypto

Implications of a Digital Euro Discussed by EU Lawmakers

As the European Union considers steps towards potential legislation, lawmakers have been conducting meetings with expert witnesses to discuss the implications of a possible digital euro. In the past, the idea of a digital euro proposed by the European Central Bank faced opposition from lawmakers. Concerns were raised around the necessity for such a currency in a region where payment systems are already efficient, potential breaches of citizens' privacy, and the possibility of it being used to increase state control.

Contrasting Opinions on Central Bank Digital Currency

The hearing held on a recent Tuesday was an attempt to aid lawmakers in understanding the subject better. However, expert witnesses provided differing viewpoints on almost all aspects of the discussion, from the decline of cash to the appropriate holding limits for a digital euro.

Italian economist Ignazio Angeloni, who had previously submitted a paper to the Parliament titled Digital Euro: When in doubt, abstain (but be prepared), posited that there was currently no compelling evidence to support the issuance of a Central Bank Digital Currency (CBDC). He argued that only a clear and present failure in the present system could justify such a major public intervention.

However, this opinion was immediately opposed by former Bank of Spain Governor Miguel Fernández Ordóñez, who was vocal in his support for a potential digital euro. He suggested that a CBDC could not only present a safer asset than bank deposits but could also play a role in deregulating the banking sector by eliminating the need for deposit insurance and prudential measures.

Concerns over Holding Limits and Privacy

Vicky Van Eyck, executive director of Positive Money Europe, clarified to lawmakers that the goal was not to bring about the downfall of banks. Instead, she argued for a gradual removal of the proposed 3,000 euro CBDC holding limit in legislative plans to prevent a mass exodus of deposits.

Angeloni expressed concerns that a movement of funds from commercial banks to the central bank could endanger the financial system and claimed that the notion of a digital euro enhancing the safety of financial systems was naïve. He further stated that a CBDC could negatively impact bank deposits, the extent of which would depend on the holding limit.

The Future of Cash and Crypto

A recurring question for the European Central Bank has been whether a digital euro would replace cash. Much of Tuesday's hearing was spent on this topic, with diverging opinions. While Ordóñez asserted that cash is on the decline, Angeloni referred to this notion as a "myth".

Van Eyck suggested that a digital euro resembling cash, especially one used for offline payments, could enhance users' privacy. Angeloni, on the other hand, claimed that crypto assets, due to their volatility, are not a threat to traditional payment systems and are unlikely to be used for payments in the foreseeable future.

Edited by Jonathan Stoker