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European Central Bank releases new paper for digital euro


The European Central Bank is currently actively engaged in releasing a central bank digital currency (CBDC). However, this product has faced much opposition from the public, and this opposition has been fuelled further by the release of yet another paper detailing the dynamics of a digital euro.

The recently released working paper on a CBDC provides insight into the technical analysis of a potential digital euro and how this currently would fit into the existing monetary system.

ECB releases paper on digital euro

The working paper released on May 13 addresses some of the popular issues in the financial sector. These issues include payment options, privacy in the digital sector, financial intermediation, and several solutions developed algebraically.

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The working paper also talks about the anonymous nature of a CBDC, saying that it is better than traditional payment options such as bank deposits, adding that it “may become supplanted” by virtual currencies or payment currencies issued by large technological companies.

The paper also adds that the risk posed by private currencies “would be particularly tangible if those platforms compete with banks in the market for financial services. However, an optionality for data sharing features may result in a widespread CBDC adoption.”

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The ECB also talked about the limitations of cash-based systems saying that they limit efficiency in online transactions despite providing anonymity. On the other hand, bank deposits make it easy to process online transactions, but they do not offer a high level of anonymity.

Additionally, private cryptocurrencies enable people to make anonymous transactions, posing a significant amount of risk. The ECB noted that these gaps presented a use case for a CBDC.

The institution said that “a CBDC that allows agents to share their payment data with selected parties can overcome all frictions. The introduction of a CBDC with anonymity enables merchants to prevent banks from extracting information from payment flows.”

CBDC issuance causes public outcry

The ECB has promoted a use case for a digital euro that provides anonymity. However, public feedback has not been positive, with many saying that they were opposed to introducing a CBDC in the EU.

The ECB launched a consultation phase for its CBDC on April 5, and so far, it has garnered over 14100 feedback entries. The majority of the feedback shows opposition towards a CBDC because of an invasion of privacy. Some have also referred to the CBDC as a “slavecoin.”

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