The European Commission announced Wednesday it’s planning to propose a bill for a digital euro early next year.
The bill will serve as the legal foundation for the European Central Bank’s ongoing technical work on the virtual version of a euro banknote or coin.
Central banks across the world are developing virtual money to ensure they’re not undermined by the growing popularity of cryptocurrencies, which has inspired Big Tech to eye ways to enter the payments market. One of the biggest jolts was when Facebook, owned by Meta, announced a few years ago that it would launch a virtual currency with 25 other companies.
Although political and regulatory pushback on both sides of the Atlantic killed that project, that broader push has spooked policymakers into action.
“If we don’t satisfy this demand, then others will do it,” ECB Executive Board member Fabio Panetta told MEPs in mid-November. “As co-legislators you will play a key role in any changes to the EU legislative framework that may be necessary to introduce a digital euro.”
The ECB is currently carrying out in-house experiments with the digital euro and expects to start working on a prototype at the end of 2023. Eurozone governors will then decide whether minting a digital euro is worth the trouble. If they do, the virtual currency could be ready by 2025 — at the earliest.
That timetable works fine for the EU’s legislative process. The bill will have to go through negotiations within EU capitals and Parliament before it can become law.
A public consultation is set to emerge from the EU’s executive arm next month. The consultation won’t replicate the ECB’s call for comment from 2020, which found payment privacy was the top concern among respondents. The Commission’s questionnaire will instead focus on how the digital euro could be used, such as handling everyday payments.
EU finance chief Mairead McGuinness announced the Commission’s legislative plans Wednesday morning at a fintech conference by Afore Consulting, soon after POLITICO had confirmed the news.
“Our goal is to table legislation in early 2023,” the Irishwoman said. “A targeted legislative consultation in the coming weeks.”
An impact assessment will follow to gauge what safeguards are needed to prevent the initiative from destabilizing the financial system.
Banks, for example, fear that savers could convert their deposits into the central bank-backed digital currency with the click of a button if there’s another financial crisis — creating an online bank run.
While it’s the ECB’s Governing Council that will make the final say on whether a digital euro is needed, policymakers within the Commission and across Europe are already convinced.
Germany and France last year urged the ECB to speed up the process amid fears that the eurozone could get left behind. The People’s Bank of China began its journey towards a digital yuan in 2014. India’s finance ministry, meanwhile, has pledged to have a virtual version of the rupee later this year.
Eurogroup President Paschal Donohoe has also put the digital euro on his policy agenda for finance ministers to discuss.
“We must push forward with full speed. No one will wait for us,” German Chancellor Olaf Scholz told reporters last year when he was finance minister. “I am convinced that eurozone countries need to take part more actively in the process and play a stronger role.”
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