In world that is literally filled with crypto volatility and speculation, Europe’s appetite for something that is more stable is understandable.
The European Central Bank’s push to create a digital version of the euro comes as China is cracking down on cryptocurrencies, including tightening the reins on miners. And in the U.K., we’ve seen hits to crypto exchange Binance’s operations.
El Salvador may have embraced bitcoin as legal tender — but perhaps that’s an outlier. It may be the case that the world’s major economies (the U.S., China and the EU) are aiming instead to have their own digital fiat(s) muscle aside the bitcoins, Dogecoins and Diems of the world.
The Governing Council of the European Central Bank (ECB) said in a Wednesday (July 14) announcement, said that it will launch the investigation phase of a digital euro project. The investigation phase (which includes focus groups and prototyping), according to the announcement, will last 24 months. The key focal points, according to the announcement, will be tied to design and distribution.
“A digital euro must be able to meet the needs of Europeans while at the same time helping to prevent illicit activities and avoiding any undesirable impact on financial stability and monetary policy. This will not prejudge any future decision on the possible issuance of a digital euro, which will come only later. In any event, a digital euro would complement cash, not replace it,” the statement said.
Interestingly, the post mentioned that past experiments tied to the digital euro ledger; privacy and anti-money laundering; limits on digital euro in circulation; end-user access found “no major technical obstacles,” and said that both the Eurosystem TARGET Instant Payment Settlement (TIPS) and alternatives such as blockchain “were proven capable of processing more than 40,000 transactions per second” — and the energy consumption was “negligible” compared to bitcoin.
We note that the energy consumption has been a key point of criticism toward bitcoin.
But elsewhere, by cracking down on exchanges, governments have the ability to short-circuit at least some access individuals and institutions may have — and in other cases, tech hiccups have been evident — which, we contend, reinforces the volatility of the sector.
In just the latest examples, the Binance customers who had been using the U.K. Faster Payments functionality had been locked out of deposit and withdrawal activities, due to platform “maintenance.” And more recently, lawsuits have accumulated since Binance froze for over an hour while the price of bitcoin and other cryptocurrencies fell. Add that to the fact that the crypto exchange had been banned from operating in Britain, and it’s clear that he regulatory and legal landscapes are marked by turbulence. The Financial Times reported that Visa and Mastercard are still maintaining their ties with the exchange.
Where uncertainty looms, it may be the case that the stakeholders who would give digital currencies critical mass in world/commercial commerce — institutions, we mean — might hold off until central bank digital currencies (CBDCs) become a bit more mainstream (even as consumers continue to embrace bitcoin and other options).
As PYMNTS reported earlier this week, a recent report from the Bank of International Settlements found that for central bank digital currencies to reach their full potential, banks must look beyond domestic use — toward cross-currency transactions. The paper noted that “the length of correspondent banking transaction chains can range from just over one intermediary on average for cross-border payments on SWIFT to five or more intermediary banks for 20 percent of euro-denominated cross-border payments.”