The European Central Bank (ECB) paves the way for the digital euro.

As the central bank announced on Wednesday, the ECB Council, the highest monetary policy body in the euro area, has approved the preliminary plans.

Politicians at European and national level had already indicated their support.

Christian Siedenbiedel

Editor in business.

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“It's been nine months since we published our report on a digital euro. During this time we have carried out further analyzes, obtained input from citizens and experts and carried out some experiments - with encouraging results, ”said ECB President Christine Lagarde. “All of this led us to the decision to shift up a gear and start the project of the digital euro,” said Lagarde. "With our work we want to ensure that citizens and companies have access to the safest form of money, central bank money, even in the digital age."

The preparations are now to enter into a two-year design phase, which is then to be followed by a three-year test phase. During this whole time, they will work closely with the political institutions in Europe. Lagarde has suggested that the digital euro could be introduced in about five years. On the one hand, the central bank wants to react to the plans of other countries such as China, which in turn want to introduce digital currencies, but on the other hand, private digital currencies such as Bitcoin or Facebook's Diem do not want to leave the field.

Citizens are expected to receive digital wallets or apps called “wallets” from the banks, on which they can store digital euros.

The central bank has not yet decided on any of these details, but information has been leaked out again and again.

The ECB tends not to use a blockchain, as is used by Bitcoin.

Rather, the existing real-time transfer system Tips from Italy could provide the technical basis.

Economists had already warned that the demands on the new digital currency should not be lowered so much that it would only become “a second PayPal”. 

Digital euro should be safer and cheaper

The advantage for consumers should be that they get “digital central bank money” which, like cash, is a direct claim against the central bank. If the house bank goes bankrupt, the digital euro would be safe. So that not all people withdraw their money from the bank and exchange it for digital euros, especially in countries with weak banking systems, there should probably be upper limits on how many digital euros everyone can keep on their wallet. In a paper by ECB expert Ulrich Bindseil, a possible upper limit of 3000 euros appeared. If the amounts on a wallet exceed this limit, the money should flow into a bank account. In addition, small payments on the Internet with the digital euro should be cheaper than before.

The digital euro was initially not without controversy in the Governing Council. The French in particular were worried that a digital currency from American companies such as Facebook could disempower Europe's monetary institutions. They wanted to counter this with a European central bank response today rather than tomorrow. Bundesbank President Jens Weidmann, on the other hand, had warned several times that on this issue, security comes before speed. He also brought the regulatory idea into play that the central bank should not nip private initiatives in the field of digital payments in the bud. In addition, the impact on the banking system would have to be carefully examined.