The digital euro is coming: the dangers to people for the financial system

It is now official. after the experiments in China with the digital Renmimbi and in Sweden with the Digital Krona, the ECB announced that a central bank digital currency will be introduced by the end of the year, so we will have the digital euro, even if the form is not yet clear.

This virtual currency can have one of two forms:

• account based, i.e. on a centralized structure, with one or more, few, servers on which the data are saved;
• token based, therefore with a decentralized structure, perhaps on blockchain.

The ECB assures that it will be “Accessible to anyone, robust, safe and consistent with the law”. But it is what is not said that, in reality, is a little more scary. Because the digital euro will also be a " better currency ", as the ECB says, but everything will depend on who will be better. In fact, here are the two great threats that this structure represents:

• First of all, a digital payment system is always perfectly traceable. Whether it is account based, whether it is token based, there is nothing that can prevent you from following the transaction. A digital payment system is in the hands of the supervisory authority who can not only know the transactions but, potentially, are also blockable. The freedom of people, their assets, their financial resources, will be in the hands of the central bank, unless it is not allowed to create completely anonymous wallets in a tokenized system. So, if there will be no connection between wallets and people and individuals will have the possibility to create a plurality of wallets, then there will be the possibility to partially heal this problem;
• if there is a digital currency that can be used for payments with a card, a code, a wallet, what are ATMs, credit cards and in general a good part of the banking system for. Why do I have to have a checking account when maybe I can digitally approve payments and schedule them? If the currency is digital and programmable, what do I need Visa for, especially in the rechargeable versions? Not to mention that if it is traceable then the bank will only be able to lend exactly the amount of money it has received, so we will not have the function of creating money and the profits of the system will only come from pure credit intermediation. The risk is an increase in interest rates, or a crisis in the credit system itself.

So the introduction of the digital euro poses many, many problems and we do not have enough information to answer them. I think we will have to update in the future….

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The article The digital Euro is coming: the dangers to people for the financial system comes from ScenariEconomici.it .

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This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/leuro-digitale-sta-arrivando-i-pericoli-per-le-persone-per-il-sistema-finanziario/ on Sun, 28 Feb 2021 16:41:13 +0000.