A 24 month investigation phase on the digital euro.
The difference between electronic money, digital, virtual and cryptocurrencies
Why are digital currencies a hot topic?
We hear about digital currencies a lot, but what are they? And why are they a hot topic? As to the first question, there is no universally accepted definition regarding digital currencies. This makes it harder to discuss the topic let alone understand it. Below an attempt is made to define in simple terms some of the terminology:
It is important to note that per ECB's own words the digital euro would "complement cash, not replace it". Furthermore "a fast, easy and secure way" to make payments would be made available. And finally it would allow individuals to have deposits directly with the ECB.
“With the digital euro the European Central Bank can become a direct competitor to retail banks as well as European FinTechs. This could have a huge impact on the current banking system.”Eric Boulet, Project Manager at TriFinance
It is easier to answer the "why" question. For companies it's a way to make money. For central banks it's a way to remain master of the amount of money in circulation in order to keep inflation and deflation in check. Additionally it challenges the dominance of non-European companies such as Mastercard and Visa. And finally with a small investment, the ECB can propose an alternative to a foreign government or company controlled currency.
There are also negative aspects. The ECB can become a direct competitor to retail banks but also to European FinTechs developing payment systems. Then there is also the question of privacy. A currency that exists solely in electronic form will always be less anonymous compared to cash.