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European Commission launches targeted consultation on a digital euro

Along with the newly launched consultation on 5 April 2022, the European Commission has made previous moves to explore a digital euro. These include:

  • Completion of an initial exploratory phase.
  • On 14 July 2021, the Governing Council of the European Central Bank (ECB) decided to launch the investigation phase of a digital euro project. This will last 24 months and aim to address key issues regarding design and distribution.
  • The European Commission has announced that a bill for a digital euro will be proposed in 2023.
  • Consultation launched now will not replicate the ECB’s call for comment from 2020, which found payment privacy was the top concern among respondents, but will instead focus on how the digital euro could be used (such as handling everyday payments).
  • The full list of objectives include gathering further evidence on:
    • Users’ needs and expectations for a digital euro;
    • The digital euro’s role for the EU’s retail payments and the digital economy;
    • Making the digital euro available for retail use while continuing to safeguard the legal tender status of euro cash;
    • The digital euro’s impact on the financial sector and the financial stability;
    • Application of anti-money laundering and counter terrorist financing (AML-CFT) rules;
    • The privacy and data protection aspects; and
    • International payments with a digital euro.

Plans for a digital currency within the UK are similarly undergoing consultation. Recent developments summarised include:

  • Bank of England (BofE) has not made a decision to introduce a digital currency to the general public. The BofE already produce digital currency for banks and some other financial institutions to use (“reserves”), but not for general use.
  • BofE, working together with HM Treasury (HMT), has set up a Central Bank Digital Currency (CBDC) Taskforce to oversee the decision on digital currency.
  • In June 2021, BofE set out their thinking on the possible opportunities and risks it could bring in a discussion paper - aiming to broaden the debate around new forms of digital money and to solicit views from stakeholders.
  • In November 2021, BofE/HMT, set out the next steps for a UK CBDC in a statement.
  • These next steps include a consultation in 2022, which will help assess the case for a UK CBDC. It will also look at the merits of doing more work to develop an operational and technology model for a CBDC.
  • More widely, the House of Lords Economic Affairs Committee have said they are sceptical of CBDC, stating “it would present significant challenges for financial stability and the protection of privacy”.
For a digital euro to be used as the single currency, concurrently with euro banknotes and coins, it would require a Regulation of the co-legislator, upon a proposal by the Commission, on the basis of Article 133 TFUE. For the Regulation, an impact assessment will be prepared, which will be supported by consultations carried out y both the Commission and the ECB.

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fintech, ip tech & data, tech & data

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