Proposals

#7 Introduce a digital euro and allow every citizen to hold central bank money

The current monetary system is a two-tiered financial system.

In the current system, the money created by the European Central Bank (ECB) is a form of money that only commercial banks and national central banks have access to. Central banks also create banknotes and coins. Money created by central banks is called “central bank money”, “base money” or “outside money”.

Money that people and businesses hold in their bank accounts (deposits) is money that commercial banks create directly, and is different from the money created by the ECB. Economists call this form of money “broad money” or “inside money.”

The money issued by the central banks is the safest form of money because the ECB cannot go bankrupt. In contrast money created by commercial banks (when extending loans) is more risky because banks can face insolvency, even though deposits are theoretically protected by deposit guarantee schemes up to 100k euros.

Today, citizens and companies are not able to use the safer central bank money (except in the form of banknotes or coins). To make digital payments, they have to use private payment systems which are costly and necessarily imply citizens giving their personal data on payments to private companies. 

With the progress in digitalization of the financial system, the ECB is considering implementing a “digital euro”. With a digital euro system, everyone would be able to use central bank money for making payments and for storing money. Having such a system could also enable and facilitate the design of policies that would directly affect citizens and non-financial businesses (without relying on private commercial banks), for example by making direct transfers to citizens to encourage spending.

➕ Pros

• The diminishing use of physical cash means increased power for private multinationals running digital payments systems. Digital euro would reduce the reliance on multinational private payment companies.
• Citizens and non-financial businesses would have equal access to central bank money.
• A digital euro could facilitate the implementation of direct transfers to citizens.
• It would make it easier for EU companies to pay or invoice foreign sales in euros instead of using foreign currencies as the dollar, thus reinforcing Europe’s sovereignty.

➖ Cons

• There is a risk to the personal data of citizens. Depending on its design, a digital euro could imply centralization of personal data on people's payments, which could be vulnerable to security breaches.
• It risks accelerating the disappearance of physical cash, which would have negative consequences for financial inclusion as a lot of people and businesses still rely on cash or have limited access to digital devices.