Before the summer break, the Governing Council, the highest body of the European Central Bank, wants to deal with the digital euro.

Approval to enter the so-called design phase is considered relatively certain now that Germany and France have confirmed their political will to do so.

After a joint meeting, finance ministers Olaf Scholz and Bruno Le Maire supported the project as a supplement, not a substitute for cash.

The focus now is on a variant of the digital euro that is relatively easy to implement.

This is apparently also intended to comply with the wish of ECB President Christine Lagarde to launch the digital euro within five years and thus within her term of office.

Christian Siedenbiedel

Editor in business.

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    The digital euro should be offered to everyone, i.e. not as pure bank or company money, as has been discussed in the meantime. That seems important to Lagarde. Italy has made the proposal to upgrade its existing real-time transfer system "TIPS" so that the digital euro can be built on this technology. That's what it seems to be boiling down to at the moment. A corresponding report by the “Handelsblatt” was classified as realistic by insiders.

    The system can already be used for so-called "instant payment" payments.

    However, it would have to be upgraded for the digital euro: The plan is apparently for citizens to be able to install “wallets”, i.e. electronic purses, on their smartphones.

    These wallets could be sold through the house banks, as ECB board member Fabio Panetta brought up in conversation.

    The citizens of the Eurozone could store their digital Euros on these wallets and use them for payments.

    Apparently there shouldn't be any blockchain technology behind it, as has already been discussed.

    No "blockchain"

    Rather, citizens should be able to keep electronic money up to an upper limit - we are talking about 3000 euros, but that does not yet seem certain - as claims against the central bank on the wallet. If the value exceeds the limit, the remaining money flows into a bank account. So the principle is similar to a waterfall. The alternative that had been discussed was negative interest rates for larger amounts in digital euros, which were intended to discourage citizens from withdrawing all their money from the bank and holding it in digital money. But that seems off the table for now.

    The digital euro, as it is now being discussed, is more similar to the existing electronic bank money than possible blockchain variants that are more reminiscent of Bitcoin. Apparently, those responsible in the central banks were concerned about how to ensure that the digital euro would meet citizens' privacy and data protection requirements, but at the same time was not so completely anonymous that it would facilitate money laundering or the financing of terrorism.

    In a public consultation with 8,200 participants, citizens of the Eurozone, especially from Germany, formulated the confidentiality of payments as the most important requirement for the new digital currency.

    A completely anonymous “offline” variant, in which citizens save the digital euro in blockchain form in their wallet without any contact with banks, was apparently discarded for security reasons.

    Claim directly against the central bank

    The big difference between the digital euro in the version planned now and the existing electronic money is that it represents a claim by the citizens directly against the central bank, just like cash up to now. If the citizen's house bank becomes insolvent, it does not affect their wallet. The money should be protected against access by the bank's creditors, such as the special assets of a share custody account. In the event of a bank failure, all that needs to be clarified is which other bank will be responsible for looking after the wallet in the future.

    As the international name of money, “digital euro” is evidently being discussed. In principle, the issue does not seem to be particularly controversial in the Governing Council, even if the details are discussed. After a decision before the summer break to continue pursuing the project in principle, the design should be discussed and researched further. According to ECB board member Panetta, a digital euro could not be introduced until 2026 at the earliest.

    Jörg Krämer, Commerzbank's chief economist, commented: “I am relieved that the digital euro should not bear interest, so no negative interest will be charged on it.” In this way, he makes it possible for citizens to have negative interest rates, as is already the case with cash to evade. "This limits the scope of the ECB to push through even more negative interest rates on the market," said Krämer. However, the possibility of evasion for citizens is limited by the planned upper limit. However, this is probably necessary so that the digital euro does not additionally destabilize the financial system in times of crisis. "Because without an upper limit, huge amounts could be withdrawn from the bank accounts in a very short time with a click of the mouse in the event of a supposed crisis," said the economist: "To compensate for that,could overtax the ECB operationally because of the speed of such a digital bank run. "