European Concerns Over Digital Euro
European economists believe that the digital euro project may be destined for failure, due to its design that seems to favor the protection of intermediary banks. The European Union's determination to develop this new currency system has led to widespread skepticism, especially among academics.
Risks and Design Flaws of the CBDC
Two economists have criticized the European Central Bank's CBDC (Central Bank Digital Currency) design, considering it a risk to the entire project. The report's authors argue that the key design choices of the ECB diminish the appeal of the digital euro, including holding limits for consumers and merchants, and the ECB seems to consider these features permanent.
Banks' Interests and Conflicts in Deploying Digital Euro
Cyril Monnet and Dirk Niepelt of the University of Bern have questioned the ECB's intent to "do no harm to banks and protect their business model." They expressed concerns about conflicts of interest that may arise from giving intermediary banks responsibility for deploying the digital euro. The report underlines that banks may be disinterested in the success of the digital euro unless related services prove more profitable.
The Impact of Financial Stress on Digital Euro
The paper points out that the ECB's plan to impose a negative interest premium on the digital euro during times of financial stress could diminish its attractiveness to intermediaries. This could further reduce the appeal of digital currency and contribute to its failure.
Convenience, Privacy, and Adoption Challenges
The report further warns that the digital euro will likely be "subpar" in terms of convenience and privacy, two key factors driving adoption. Many citizens in Europe may prefer private sector solutions for retail payments, due to concerns about government oversight and lack of faith in the ECB.
Timeline and Official Statements on Digital Euro
Currently in its design phase, the digital euro's earliest possible issuance is targeted for 2027. Despite concerns, ECB executive Fabio Panetta has emphasized that the digital euro is a necessary advancement, promising wide accessibility, ease of use, and privacy akin to cash.