The European Central Bank is considering the introduction of its own digital currency.

What are the benefits for citizens?

The ECB has set up a working group with the central banks of Switzerland, Sweden, the United Kingdom and Canada, as well as the Bank for International Settlements, for this major project.

Former ECB President Mario Draghi has clearly denied the introduction of central bank-based cryptocurrency. The change of strategy under his successor Christine Lagarde comes at a time when corporations such as Facebook, as well as the Chinese state, are exploring the possibilities of virtual money creation. An introduction via the ECB would therefore not be a day too early.

Risks for banks

Banks first spoke out in assessing the opportunities and risks of a Central Bank-Issued Digital Currency (CBDC). They worry that citizens could withdraw their money from traditional current accounts with their zero or penalty interest rates in order to invest it more cheaply with the ECB. In fact, the increase in money would be brought more closely into the original design of the ECB by means of an additional game variant; provided that an appropriate legal framework is established for this purpose. However, the banks’ worst-case scenario appears unfounded; there are already considerations that parking of digitally exchanged euros in ECB accounts of around EUR 3,000 or more should be subject to a penalty rate.

Opportunities for citizens

But what could be the added value of a digital currency for each of us? Banks already have sufficient amounts of money. However, risk aspects repeatedly prevent the money from being disbursed to individuals and companies seeking credit. With the introduction of a central bank-based second currency alongside the analogue euro, this target group could have its own ECB bank account. Instead of just converting euros into “EU bits,” however, the ECB should consider how it can use its digital money creation facility as an active financial instrument. For example, during the Corona crisis, all EU citizens could receive a ‘virtual welcome allowance’. This virtual entry fee could also be used as a first financial aid, but also for important impulses for the recovery of the economy.

In addition, if the EU Commission finds a national emergency for a Member State or region, further aid money in the sense of a “helicopter money” could be paid into the new ECB accounts without red tape.

It is also conceivable that people and companies that have been particularly committed to the community or, for example, to climate and refugee projects, would receive additional coins under a transparent bonus system.

Visible added value of the ECB for each and every one of us

Whatever the functions of a cryptocurrency at the end of the day, it is crucial that this project must not become an additional playground for foreign exchange speculators. Speculative income should be taxed directly and paid to Brussels. Instead, the ECB has a historic opportunity to make its personal added value for Europe directly tangible. We need to take advantage of this momentum.

Author: Markus Lempa