The European Union is closing its public consultation period Tuesday (June 14) regarding its intention to launch a digital euro, with the central bank digital currency (CBDC) project having received overwhelmingly negative feedback on the idea.
The more than 16,000 comments largely argued that a CBDC would be invasive of consumer privacy and give EU governments more control over citizens’ finances — and eventually over their lives.
However, the consultation is just that — a legal (and marketing) requirement on the road to the launch of a digital euro that has strong support from the European Commission and European Central Bank, as well as the European Parliament.
In February, European Commission Finance Chief Mairead McGuinness said a digital euro will be proposed next year, so it seems likely that the consultation will be largely a roadmap for convincing the public that its worries are unfounded.
Read more: EU Faces Citizens’ Opposition in Race for Digital Euro
Growing Momentum
There are now about 100 countries working on or studying a CBDC, according to the Atlantic Council. A new update of its Central Bank Digital Currency Tracker shows that 50 countries are either in the development, pilot or launch phase.
That includes 10 that have launched — the Bahamas, Jamaica, Nigeria and the seven members of the Eastern Caribbean Currency Union, as well as 15 in the pilot phase. While China’s digital yuan hasn’t technically launched yet, it is all but ready to go, at least from a technical perspective, although there is concern about getting enough uptake by citizens.
This includes all of the G-7— the United States and United Kingdom are furthest behind — and 19 of the G-20’s members.
Among the issues the Atlantic Council said it foresees are that “a significant interoperability problem” is coming soon and will likely start to become a bigger and bigger problem.
The Clearing House Opposed
Real-time-payments firm The Clearing House is strongly against a CBDC, Rob Hunter, director of regulatory and legislative affairs and deputy general counsel of The Clearing House (TCH), told PYMNTS’ Karen Webster last week.
See more: The Clearing House Says Digital Dollar Is a Solution in Search of a Problem
Depositors choose to keep their funds in digital dollars, which unlike banks cannot collapse, so the banking industry fears it will lose access to those funds. Even if the deposits are held in banks, they would not have access to them to lend out.
“Foundationally, it has to be a liability of the central bank, and unlike deposits, it couldn’t be leveraged for lending,” Hunter said.
Aside from badly damaging the banking industry, it would leave far less money available to lend — worsening economic downturns at exactly the time that more people would be most inclined to abandon private financial institutions (FIs).
It’s “the worst of both worlds,” Hunter said. Banks “get saddled with all the [know your customer (KYC), Office of Foreign Assets Control (OFAC) sanctions list] screening, customer due diligence, and anti-money laundering screening obligations without a viable revenue stream. And it’s a net drain on their deposits.”
That opinion is unsurprising, as the company is owned by a group of large banks — which made their opinion clear recently, with two industry associations presenting a very strong “no” vote to the Federal Reserve via its public consultation website.
Stay Green
The International Monetary Fund (IMF) has released a study that, unsurprisingly, calls for all parts of the crypto ecosystem, including CBDCs, to be built on environmentally friendly technology — unlike the energy-hungry system that underpins bitcoin.
“While crypto assets like bitcoin are wasteful in terms of resources, other designs could be more energy efficient than existing payment systems,” it said.
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