Forget The Coronavirus Stimulus Bill’s Digital Dollar—The Digital Euro Is Coming
A provision for a digital dollar was part of a draft stimulus bill put together by the U.S. Democratic Party as a means to make payments to people and businesses hit by coronavirus-induced economic turmoil, but it didn’t make the final cut.
While plans for the digital dollar have fallen by the wayside for now, others aren’t far behind—China’s digital yuan is in the pipeline and now a digital euro is being trialled by France’s central bank.
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Earlier this week, the Banque de France launched an experimental program to test the integration of digital euro in settlement procedures—designed to measure both the potential of decentralized technologies and broader uses of central bank digital currencies.
“A host of market infrastructure projects are underway, especially in Europe, aimed at helping financial markets to function more effectively and more smoothly,” the Banque de France wrote in a statement laying out its digital euro testing plans late last month and inviting qualified institutions within the European Union to sign up by a mid-May deadline with a proposal that covers one of the use cases it outlined.
The Banque de France said the trial is aiming to show how traditional interbank settlement can be carried out using central bank digital currency, identify the benefits of central bank digital currency, and analyze effects of central bank digital currency on financial stability and monetary policy.
“The results of these experiments will be a key element of the Banque de France’s contribution to a broader project conducted by the Eurosystem on the potential implementations of a [central bank digital currency],” the Banque de France said, adding “any decision to create a [central bank digital currency] is a matter for the Eurosystem” and “the Banque de France will not engage in money creation in the context of these experiments.”
The central bank also said that the trial is not designed to create a system to replace banknotes and coins, something central bank digital currency critics have previously warned against.
After a series of interviews with applicants in June, the Banque de France will choose the test’s participants in July.
Back in December last year, the European Central Bank (ECB) said it would create a digital currency if the private sector fails to do so.
“If industry efforts fall short of developing an innovative and efficient pan-European payment solution, the social need for it could potentially be met by issuing a [central bank digital currency],” the ECB wrote in a paper, adding it could “guarantee” access to a “cheap and easy means of payment.”
Calls for the creation of central bank digital currencies have been growing louder over recent months, spurred on by social media giant Facebook’s plans to launch a cryptocurrency some time this year and China’s imminent digital yuan project.
Central bank digital currencies could be seen as a tacit endorsement of bitcoin and cryptocurrencies, especially if they were to use bitcoin’s underlying blockchain technology.
Last year, the bitcoin price was boosted by rumours some of the world’s biggest technology companies, from iPhone-maker Apple to social media giant Facebook, were poised to jump into the cryptocurrency game, with bitcoin more than doubling in the first six months of the year.
After Facebook’s plans hit a regulatory roadblock, the bitcoin price fell back—but central bank digital currencies could go some way to bolstering bitcoin adoption.