Crypto

Cryptocurrencies: the digital euro, a necessary step for the European Central Bank?

To counter the introduction of cryptocurrencies, the European Central Bank launched a working group last October to reflect on a possible launch of the digital euro. The institution is giving itself two years to issue its verdict. But with the rise of the digital economy, the creation of the digital euro seems inevitable.

While the euro will celebrate its 20 years of circulation on January 1, 2022, the future of the single currency is certainly in its digital form. Under the authority of the European Central Bank (ECB), the digital euro could also become the “symbol of progress and European integration” that European officials so desire, according to Fabio Panetta, a member of the ECB’s executive board.

The working group, launched in October 2021, is given two years to analyze the possibility of putting a digital euro into circulation. In fact, the European Central Bank specifies that “the decision to develop or not a digital euro will be taken on the basis of this study phase.”

However, with the massive deployment of cryptocurrencies around the world, it is difficult to imagine a negative response to this study. The ECB itself has repeatedly stressed the importance of adapting to the needs and habits of Europeans, who are increasingly turning to digital currencies. And if the euro wants to ‘stay in the game’, it has no choice but to evolve with the times.

A monetary policy to (re) build

And as often happens when you have to make decisions at age 27, it will not be easy. The requirements are high and experts from the ECB and the national central banks of the euro zone have defined various “fundamentals” in relation to a digital euro, such as “ease of access, robustness, security, efficiency, respect for privacy and legality. “.

Held from October 12, 2020 to January 12, a public consultation allowed the ECB to ask 18 questions of European citizens in order to obtain their opinions on “the advantages and challenges of issuing a digital euro and on the modalities of its possible implementation”.

Three elements emerged from this study: protection of privacy, security and ability to pay must be ensured throughout the euro area; integration with existing payment solutions is essential; All currently available hardware and software solutions must be adapted to the use of a digital euro. Note that the query received only 8,221 responses when we know that the digital euro could potentially affect 340 million people.

During a speech delivered on December 10 in Rome, Fabio Panetta again outlined the outlines of a possible launch of the digital euro. He stated:

The digital euro would be a form of sovereign currency provided by the ECB in electronic form. Everyone – households, businesses, shops – would use it to make or receive retail payments throughout the euro area. It would offer citizens the same services that they receive today with paper tickets. The digital euro would complement cash, not replace it. Unlike cash, it could be used not only for money transfers between people or for purchases in stores, but also for online purchases. And since this would be a commitment from the central bank, the digital euro would be, like banknotes, free of any risk, be it market, credit or liquidity.

Digital euro or bitcoin?

Will the digital euro be different from existing cryptocurrencies? Yes, insists the ECB through Fabio Panetta. In fact, for the latter, the digital euro “has nothing to do with crypto assets such as bitcoin.”

Since it would be issued by the ECB, the value of the digital euro would be guaranteed. Crypto assets, on the other hand, are not issued by any responsible entity: they are theoretical instruments with no intrinsic value, which do not generate an income stream. They are created using computer technology and neither party can guarantee their value.

Fabio Panetta specifies that crypto assets are traded by operators whose “sole objective is to resell them at a higher price.” It is “a gamble, a high-risk speculative contract, without any fundamental elements.”

Finally, the development of the digital euro is also an issue with a strong political impact. In fact, China is to date the only major economic power that has developed its digital currency, the digital yuan. And according to figures cited at the end of last October by a senior official of the Central Bank of China, 140 million portfolios were open on that date, for a total of 62 billion yuan.

Very fast adoption, driven by the central power that views the development of cryptocurrencies like bitcoin with a very negative view. The stakes are therefore high for the European Union, but also for the United States, which is still in the experimental phase. One more delay to catch up.

Aurore Dessaigne

While the euro will celebrate its 20 years of circulation on January 1, 2022, the future of the single currency is certainly in its digital form. Under the authority of the European Central Bank (ECB), the digital euro could also become the “symbol of progress and European integration” that European officials so desire, as stated by Fabio Panetta, a member of the ECB’s executive board, launched in October 2021, two years are given to analyze the possibility of putting a digital euro into circulation. In fact, the European Central Bank specifies that “the decision to develop or not a digital euro will be taken on the basis of this study phase.” However, with the massive deployment of cryptocurrencies around the world, it is difficult to imagine a negative response to this study. The ECB itself has repeatedly stressed the importance of adapting to the needs and habits of Europeans, who are increasingly turning to digital currencies. Et si l’euro veut ‘rester dans le coup’, il n’a pas d’autre choix that d’évoluer avec are temps.Et comme c’est souvent le cas quand des decisions doivent être prises à 27, cela ne sera is not easy. The requirements are high and experts from the ECB and the national central banks of the euro zone have defined various “fundamentals” in relation to a digital euro, such as “ease of access, robustness, security, efficiency, respect for privacy and legality. “. Held from October 12, 2020 to January 12, a public consultation allowed the ECB to ask 18 questions of European citizens in order to obtain their opinions on “the advantages and challenges of issuing a digital euro and on the modalities of its possible implementation”. Three elements emerged from this study: protection of privacy, security and ability to pay must be ensured throughout the euro area; integration with existing payment solutions is essential; All currently available hardware and software solutions must be adapted to the use of a digital euro. It should be noted that the query received only 8,221 responses when we know that the digital euro could potentially affect 340 million people During a speech delivered on December 10 in Rome, Fabio Panetta again laid out the outlines of a possible launch of the digital euro. He said: Will the digital euro be different from cryptocurrencies that already exist? Yes, insists the ECB through Fabio Panetta. In fact, for the latter, the digital euro “has nothing to do with crypto assets such as bitcoin.” Since it would be issued by the ECB, the value of the digital euro would be guaranteed. Crypto assets, on the other hand, are not issued by any responsible entity: they are theoretical instruments with no intrinsic value, which do not generate an income stream. They are created using computer technology and neither party can guarantee their value. Fabio Panetta specifies that crypto assets are traded by operators whose “sole objective is to resell them at a higher price.” It is “a gamble, a high-risk speculative contract, without any fundamental elements.” Finally, the development of the digital euro is also an issue with a strong political impact. In fact, China is to date the only major economic power that has developed its digital currency, the digital yuan. And according to figures cited at the end of last October by a senior official of the Central Bank of China, 140 million portfolios were open on that date, for a total of 62 billion yuan. Very fast adoption, driven by the central power that views the development of cryptocurrencies like bitcoin with a very negative view. The stakes are therefore high for the European Union, but also for the United States, which is still in the experimental phase. One more delay to catch up.Aurore Dessaigne

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