What are digital currencies

A digital version of the euro could soon become a reality - but not as a substitute for cash, but rather as a counterpart. What distinguishes the digital euro from other cryptocurrencies such as Bitcoins and Libra? It would be issued by the European Central Bank (ECB), which wants to ensure the stability of the currency.

Is he coming or is he not coming? The digital version of the euro has long been a concern of the financial world. The European digital currency is also slowly taking on concrete forms. After all, the European Central Bank (ECB) wants to test the digital euro internally in the near future. At the same time, from October 12th, citizens as well as experts from science and the financial sector will be asked about the pros and cons. The ECB is expected to either give the green light for the start of a digital euro project in mid-2021 - or it will leave it.

While the project of a digital currency in the euro area is still in its infancy, other countries are well further ahead.

  • E-Krona:The Swedish Central Bank's project is comparatively far advanced. In the Scandinavian country, cash hardly plays a role anymore.
  • DCEP: In China, the state digital currency Digital Chinese Currency Electronic Payment has been in the test phase since the end of March 2020.

There are also other initiatives.

  • Bitcoins: This currency only exists as a digital string, new bitcoins are created by Internet users. The payment system works encrypted using cryptographic methods. This is why bitcoins and other digital currencies - there are now several hundred variants - are called crypto currencies.
  • Libra: Facebook boss Mark Zuckerberg wants to launch this digital currency by the end of 2020. One of the goals of Libra: money transfers should become faster and cheaper across national borders.

ECB Executive Board member Fabio Panetta explained in a blog post: “The introduction of a digital euro may be necessary in various scenarios, for example when people no longer want to pay with cash or in extreme situations such as natural disasters or pandemics in which other conventional payment services are no longer available function."

In the article, which has also appeared in the newspapers “Die Welt” and “Le Figaro”, Panetta also stated: “A digital euro would also protect us from public or private digital means of payment coming from countries outside the euro area originate or are controlled from there, largely displace existing means of payment. "

  • For example, cross-border payments, which often take days, can be made within seconds.
  • Automate financial business processes in companies and thus accelerate them.

"A digital central bank euro would have a stable value because it directly represents the value of our currency and would also be issued by the ECB - just purely digitally," says Patrick Hansen from the Bitkom digital association in Berlin. In addition, it would be accepted everywhere as a general means of payment. This would give the digital central bank euro two clear advantages over other crypto currencies.

"Bitcoin is subject to fluctuations too high to make sense for the payment transactions of individuals and companies," explains Hansen. In addition, the vast majority of shops and service providers do not yet accept Bitcoins as a means of payment.

WhatLibra concerns: It is still unclear what acceptance this means of payment will meet in the business world. With the project, Facebook wants to simplify cashless payment transactions, especially in emerging countries, as there is no nationwide access to the banking system there. Critics fear that Libra could, among other things, facilitate money laundering.

“It is still open, for example, what effects a digital euro could have on the traditional banking sector,” says Hansen. With a digital euro, for example, it could be possible for citizens to deposit money directly with the ECB. So far, only commercial lenders such as banks, governments and other central banks have had this option.

Some of the experts now fear that in times of crisis bank customers could shift their money from commercial banks to the ECB and thus exacerbate emergencies. However, these possible effects depend primarily on the technical design of a digital euro.

Also still to be clarified: Are the technical infrastructures absolutely (fraud) secure and can the personal data of users be protected? There are still some unanswered questions in terms of data protection and IT security.