As the use of cryptocurrency continues to grow from strength to strength, there is increased discussion about various world governments and regulatory bodies issuing their own official digital tokens to citizens and at this point, it is considered an inevitable conclusion. This includes China developing its own national digital token along with several other countries to Facebook announcing the launch of the Libra token this year. While these issues are certainly being discussed, it is more apparent that widespread cryptocurrency use is a far more complex issue than previously thought.
The European Central Bank, who have previously considered the idea of a digital euro token, has stated that while they are not against the idea, they would want to prevent oversaturation of the digital euro in the market and of citizens hoarding too much of it.
Digital Euro Woes
On January 3, 2020, a working paper was published by Ulrich Bindseil, the bank’s Director General of Market Infrastructure and Payments, which focuses on central bank digital tokens and sheds some light on what the European central bank is thinking with regards to them.
The paper address is the possibility of European Central Bank issuing a digital euro and states that there are both advantages and disadvantages to this and that the bank must consider all before they seriously begin considering releasing a digital euro. The paper also makes sure to state the difference between the central bank digital currency and a stablecoin.
One measure suggested by the paper is that a two-tier rate system should be enacted by the European Central Bank. This includes introducing an unattractive rate for holdings above a certain amount of the digital euro and that this will prevent individuals from holding digital euro above a certain amount and are discouraged from selling fiat for the digital euro in times of crisis. Individuals could also move the digital tokens out of the jurisdiction of the European central bank with much more ease than with fiat currency and this is also taken into consideration.
“It is acknowledged that solving the issue of risks of structural and cyclical bank disintermediation does not necessarily lead to the conclusion that there is a sufficient universal business case for CBDC. The merits of adopting CBDC will depend on the preferences of money users and available payment alternatives,” the paper says.