The European Central Bank announces a decisive move towards introducing a digital euro. This initiative will enhance privacy, increase competition in the payment sector, and ensure financial stability.
Piero Cipollone, a top official at the European Central Bank (ECB), recently talked to a group of European lawmakers about getting ready to create a digital version of the euro. He mentioned four main challenges they need to tackle and assured that the ECB is working to ensure that everyone can use this new digital currency without having to pay for it.
Cipollone explained that the ECB is already looking for companies that can help build and support this new digital euro. He said it’s important to start looking for these companies now, before they officially decide to introduce the digital euro.
This way, they won’t be behind schedule. He also mentioned that any agreements they make with these companies will be flexible, taking into account future laws and technology changes.
Moreover, he mentioned that only companies based in the EU, or those controlled by EU citizens, will be allowed to be part of this project.
Partners for the digital Euro
This could be a big moment for Amazon because it was picked to help design a sample online shopping feature for the digital euro, but now they are looking for more applicants for the project.
Piero Cipollone also talked about the rules for using the digital euro. He described it as a single set of guidelines and standards that will make sure the digital euro works smoothly everywhere. According to Cipollone, the digital euro should be as straightforward to use as cash.
This would mean people wouldn’t have to rely on big international companies to make payments and everyone in the euro area would get the same level of service.
Cipollone likened the system supporting the digital euro to railway tracks.
Just like tracks can be used by many different train companies but are owned by the government, the digital euro system would be open for various businesses to use while being controlled by the state.
There is no need to make the digital Euro a legal tender
On February 15, a group called the European Money and Financial Forum, which is independent and not-for-profit, released a study. This study pointed out some tricky legal problems that could come up if the digital euro is made a required form of payment.
It was especially concerned about how this decision could affect companies that handle payments and are part of the euro payment system. The study also criticized the idea of making something a required form of payment, calling it an outdated concept.
To make sure the digital euro doesn’t upset the financial system, Piero Cipollone said they’re adding some safety measures to its design. For instance, the digital euro won’t earn interest, so it won’t compete with banks where people save their money.
There will also be limits on how much digital euro individuals can hold, and businesses and financial institutions won’t be allowed to keep it.
However, people will be able to connect their digital euro wallets to their bank accounts. This means they can make transactions directly without needing to move money into their wallets first.
Cipollone also mentioned privacy with the digital euro, promising that it would allow for very private online payments, more private than what’s currently available through commercial services.
Will cash still be in use after the release of the digital Euro?
Cash will still be available, and when you pay with the digital euro without using the internet, it will be just as private as using cash.
Only the person giving the money and the person receiving it will know the details of the transaction.
When paying online, the European Central Bank (ECB) will only get a very small amount of data that’s been disguised to protect identities.
This data is only for necessary actions like completing the payment.
Plus, users will have more control over their personal information than they do with private payment services. The digital euro will also have the best protection against online threats.
ECB’s timeline for the digital Euro
The European Central Bank (ECB) is taking careful steps towards introducing the digital euro, with the project currently in the research and development phase.
In November 2023, the preparation phase was approved to start after the investigation phase was concluded.
While specific dates for the full rollout are yet to be announced, the ECB has indicated a phased approach.
Initial experiments and prototypes are being tested to ensure the digital euro meets high standards of security, efficiency, and accessibility.
Following this, a pilot phase could be launched to test real-life applications, expected to take several years to complete.
The final introduction of the digital euro to the public would only occur after successful trials and adjustments based on feedback.
This cautious approach ensures that once launched, the digital euro will be ready for widespread use across the eurozone, providing a seamless and secure digital payment option for all citizens.
Ultimately, the final decision to introduce the digital Euro can only be taken after the entire EU adopts a legislative framework.
In a landmark development for Europe’s financial landscape, France’s third-largest bank, Société Générale, has made a bold entry into the digital currency domain.
A French bank is launching its euro-pegged stablecoin
The bank has unveiled its native euro-pegged stablecoin, named EUR CoinVertible (EURCV), marking a significant stride in the European banking sector’s adaptation to the evolving world of cryptocurrency.
This groundbreaking stablecoin, set to debut on the Luxembourg-based Bitstamp crypto exchange as reported by the Financial Times, is fully backed by the euro.
This move allows Société Générale’s customers to seamlessly engage with the digital asset market, opening up new avenues for trading and investment.
Jean-Marc Stenger, CEO of Société Générale Forge, has emphasized the EURCV’s pivotal role in the bank’s ongoing journey within the crypto sphere, highlighting its potential utility in settling trades involving digital bonds, funds, and various assets.
The EURCV extends beyond the confines of Société Générale, promising widespread applicability across different financial service providers.
Société Générale is also launching a crypto bond
In a parallel yet equally innovative venture, Société Générale has issued its first digital green bond as a security token on the Ethereum public blockchain.
This bond, valued at 10 million euros, carries a three-year maturity and is earmarked for financing environmentally sustainable activities. The bank stated, “This enables issuers and investors to measure the carbon emissions of their securities on the financial infrastructure.”
The bond’s digital infrastructure offers around-the-clock access to data on its carbon footprint through a smart contract, pioneering transparency in green financing.
The first licenced crypto provider in France
Société Générale’s subsidiary, Forge, has recently earned the distinction of becoming the first fully licensed crypto service provider in France.
Forge, a part of Société Générale, which is France’s third-largest bank, has become the first company in the country to get the top license for offering cryptocurrency services. This license, known as PSAN, allows Forge to hold digital assets for customers, buy and sell them for real money, and trade them against other digital assets.
On July 19, 2023, the French stock market regulator, the Autorité des Marchés Financiers (AMF), added this information to their register. According to Société Générale, this license is the highest regulatory approval possible for handling digital asset transactions.
Already, about 90 companies are licensed by the AMF.
For example, Crédit Agricole, a major rival of Société Générale, got permission for holding digital assets in June 2023.
But Forge is the first to receive this top-level approval for many different services. Business FM, a French radio station, pointed out that these tough requirements for the license favour big, established banks over smaller crypto companies.
This accreditation by the French stock market regulator, the Autorité des Marchés Financiers (AMF), signifies a high level of regulatory endorsement for digital asset transactions, setting a precedent in the French financial sector.
Société Générale has been very active in the crypto world.
It has issued euro bonds on the Ethereum blockchain, created security tokens on the Tezos blockchain, and offered Dai stablecoin loans for bond tokens.
In April 2023, Forge introduced EUR CoinVertible, a stablecoin tied to the euro, for big, institutional clients. This new digital asset is available only to investors who have gone through Societe Generale’s standard customer verification and anti-money laundering checks.
As Europe gears up for the Markets in Crypto-Assets Regulation in 2024, Société Générale’s ventures into the euro-pegged stablecoin market and the issuance of a green bond on Ethereum signify major milestones.
While France is generally open to crypto, the French branch of Binance, a global crypto company, is currently under investigation by the French finance investigation service, directed by a specialized court in Paris.
There’s a growing momentum for crypto adoption in Europe, from stablecoins to digital euros. European agencies and companies are taking steps to make the digital financial landscape more accessible and regulated.
ESMA crypto guidelines
On October 20, two major European financial agencies released a paper to discuss new rules regarding how individuals interact with crypto assets. These are called the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA). These rules are aimed at checking if the people running and investing in crypto-related companies are qualified for their roles.
The guidelines offer a common way for regulators to decide if these people are suitable for giving permission to launch new crypto assets or services. This includes making sure they have the necessary knowledge, skills, and time commitment for their roles.
The new guidelines aim to make the cryptocurrency market more trustworthy and consistent. They are open for public feedback until January 22, 2024.
Looking ahead to new rules that will be in place by June 30, 2024, the EU’s banking authority has also suggested that companies dealing with stablecoins should start following certain best practices for managing risks and protecting consumers. These initial suggestions were shared with the public on July 12 to clarify what will be expected under the upcoming crypto regulations.
Digital Euro project
In February 2023, a Finnish firm called Membrane Finance launched a stablecoin tied to the euro. The CEO, Juha Viitala, believes this regulated coin, called EUROe, will help more people in Europe to increase their money using decentralised financial apps (DeFi).
On October 18, the European Central Bank said they’re entering the “preparation phase” for their digital euro project. This stage will take two years and will be about setting the final rules and choosing who will issue the digital euro.
Transaction anonymity of digital Euro
On October 18, European privacy agencies released a statement about the digital euro, a new type of money suggested by the European Commission in July 2023. These agencies gave advice on how to better protect people’s personal information.
For example, they said that rules around how much digital euro one person can have need to be clearer. Right now, the European Central Bank and national banks can see all of a user’s information through one access point, and the agencies think that needs to be reconsidered. They believe there are technical ways to store this data without centralising it.
They also said that the current plans for spotting fraud could be too intrusive and suggested finding less invasive methods. The agencies strongly recommend setting up a privacy limit for small, everyday transactions that don’t need to be tracked for anti-money laundering reasons.
Meanwhile, the European Central Bank said it’s moving ahead with its digital euro project. After two years of studying the idea, they are now going to spend another two years finalising the rules and picking who will be in charge of issuing this digital money.
Private stablecoins vs Central Bank Digital Currencies (CBDCs) in Europe
Here’s a comparison between private stablecoins and Central Bank Digital Currencies (CBDCs) in the European context:
Private Stablecoins like EUROe
- Issuers. Issued by private companies, such as Membrane Finance in Finland.
- Regulation. While they aim to be regulated, the guidelines are not always as stringent as those for traditional currencies.
- Accessibility. Generally, it is easier to acquire and use, especially for those familiar with cryptocurrencies and decentralised finance (DeFi) platforms.
- Purpose. Often aimed at facilitating trade and investment in the DeFi ecosystem.
- Trust. Reliance is primarily on the issuing company and its ability to maintain a 1:1 peg with the euro.
- Anonymity. The level of transaction privacy depends on the issuing company’s policies and technology.
Central Bank Digital Currencies like the Digital Euro
- Issuers. Issued by a country’s central bank, in this case, the European Central Bank (ECB).
- Regulation. Heavily regulated and backed by the government, making them a more “official” form of currency.
- Accessibility. Likely to be more universally accessible but may require more stringent identity verification.
- Purpose. Aimed at a wider array of applications, including retail payments, cross-border transactions, and even government disbursements.
- Trust. Backed by the government, thereby considered more secure and stable.
- Anonymity. Subject to government regulations, including Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) laws, meaning less potential for anonymity, especially for large transactions.
Explore the cutting-edge developments in the world of digital currencies, from China’s groundbreaking digital yuan hub to the impending launch of Japan’s DCJPY. Discover how Finland is embracing the digital euro, and witness JPMorgan’s successful cross-border payments pilot with First Abu Dhabi Bank.
China Unveils Shenzhen Hub for Digital Yuan CBDC Innovation
China has launched an industrial park in Shenzhen aimed at fostering the development of the digital yuan ecosystem.
This groundbreaking initiative, reported on Oct. 11 in Chinese media, marks the establishment of the first-ever park dedicated to the central bank digital currency (CBDC), also known as the e-CNY.
Situated in Shenzhen’s Luohu district, adjacent to Hong Kong, the industrial park is commencing its operations with nine initial residents.
Reports indicate that the district government has introduced ten strategic initiatives to accelerate the growth of the digital yuan ecosystem. These initiatives encompass the advancement of payment solutions, smart contracts, hard wallets, and the promotion of the digital yuan.
In an effort to incentivise new residents, the government is offering compelling benefits, including up to three years of rent-free accommodation.
Commercial banks that choose to establish a presence in the park can receive incentives of up to 20 million yuan ($2.7 million), while startups may be eligible for support of up to 50 million yuan ($6.9 million).
The total government support allocated for this endeavour amounts to 100 million yuan ($13.7 million). Additionally, favourable loan terms are being extended to participants.
Notably, among the inaugural residents of the park are prominent entities such as Hengbao, Wuhan Tianyu Information, and Lakala Payment. Hengbao and Tianyu are engaged in the production of payment cards, among other endeavours, while Lakala Payment operates as a payment processor and collaborates with Visa.
China has implemented numerous strategies to stimulate the adoption of the digital yuan, which is currently in the pilot phase.
This initiative spans 26 cities participating in the pilot program, and the central bank digital currency (CBDC) is already accepted by 5.6 million merchants—a number that is expected to steadily increase, thanks to government support and technological advancements.
Notably, the digital yuan app recently introduced a feature allowing tourists to link their Visa and Mastercard accounts, further enhancing its accessibility. Despite these efforts, the adoption rate is still perceived as sluggish, with 261 million digital yuan wallets created as of 2022.
Japan to launch its digital currency in 2024
In a significant development, the DCJPY, a digital currency backed by the Japanese yen, is set to launch in July 2024. This ambitious project is spearheaded by DeCurret Holdings, a digital currency and electronic payments firm, as detailed in their white paper released on October 12.
The DCJPY Network, outlined in the white paper, will comprise two key zones: the Financial Zone and the Business Zone.
The former will facilitate banks in minting digital currency deposits on the blockchain, while the latter will be dedicated to conducting transactions.
Additionally, the Business Zone will serve as a platform for the issuance of nonfungible tokens, security tokens, and governance tokens.
Aozora Bank, a commercial institution with 19 branches in Japan, is poised to become the principal issuer of DCJPY.
The digital currency will be fully backed by Japanese yen deposits.
In 2021, DeCurret reported the formation of a consortium consisting of 70 Japanese companies that will participate in the DCJPY Network. While the white paper doesn’t disclose specific participant names, DeCurret boasts the support of 35 shareholding companies, including prominent names such as Japan Post Bank, Mitsubishi, and Dentsu Group.
In related news, the Bank of Japan, in May 2023, disclosed the results of the second phase of its central bank digital currency experiment and is on track to make a final decision on issuing a “digital yen” by 2026.
Simultaneously, Binance and Mitsubishi UFJ Trust and Banking Corporation are actively exploring the issuance of Japanese yen and other foreign currency-denominated stablecoins within the country.
First Abu Dhabi Bank Successfully Concludes Cross-Border Payments Testing on JPMorgan Onyx
In a significant milestone, First Abu Dhabi Bank (FAB) has wrapped up its cross-border payments testing on JPMorgan’s Onyx platform. This achievement follows a similar pilot conducted by Bank ABC in Bahrain.
JPMorgan, known for its cutting-edge blockchain solutions, has also introduced its Tokenization Collateral Network on the Onyx platform.
The blockchain-based cross-border payments pilot project between JPMorgan’s Onyx Coin Systems and FAB was executed seamlessly, with response times meeting expectations, according to an official statement.
Notably, the FAB pilot concluded shortly after a successful test in Bahrain, where Bank ABC trialed the Onyx system and subsequently initiated a limited launch of services.
JPMorgan’s permissioned distributed ledger, launched in 2020, has been gaining substantial traction in recent months. Tyrone Lobban, the Head of JPMorgan Onyx Digital Assets and Blockchain, disclosed that the platform currently processes a daily volume ranging from $1 billion to $2 billion.
Moreover, Onyx has expanded its reach beyond the Middle East, serving as a platform for euro-denominated payments in Europe since June.
During the same period, it also facilitated interbank United States dollar settlements in India through collaboration with a consortium of six banks.
On October 11, JPMorgan’s groundbreaking Tokenization Collateral Network, operating on the Onyx blockchain, recorded its first public trade.
In this instance, money market fund shares were tokenised and securely deposited at Barclays Bank to support a derivatives exchange between JPMorgan and BlackRock.
The finance industry has witnessed increased interest in tokenisation, with Mastercard testing its Multi Token Network in June and Citigroup introducing Citi Token Services in September.
This collaborative effort, concluded in June, was initiated by the Monetary Authority of Singapore and the Bank for International Settlements. It focused on creating a liquidity pool of tokenised bonds and deposits for lending and borrowing purposes.
Finland Forges Ahead with Instant Payments and Digital Euro Initiatives
The Bank of Finland (BOF) is taking active steps to foster innovative payment solutions.
BOF, under the guidance of Tuomas Välimäki, a BOF board member and a member of the Governing Council of the European Central Bank (ECB), has announced its role in coordinating the development of a Finnish instant payment system aligned with European standards.
Välimäki emphasized the significance of the digital euro, referring to it as the most prominent project within the European payment sector. He highlighted the potential of a digital euro, stating, “The possible introduction of a digital euro would give consumers the option of paying with central bank money wherever electronic payment is accepted.”
The Bank of Finland, in collaboration with the European Payments Council, is actively engaged in crafting this Finnish instant payment solution.
It’s worth noting that this solution will be based on credit transfers, eliminating the reliance on traditional payment card infrastructure.
In February 2023, a Finnish company named Membrane Finance took a significant step by launching a fully reserved stablecoin backed by the euro, known as EUROe.
Membrane Finance CEO Juha Viitala expressed optimism about EUROe’s potential to encourage more Europeans to explore decentralised finance (DeFi) applications and enhance their financial well-being.
On October 18, the governing council of the European Central Bank (ECB) initiated the “preparation phase” for the digital euro project, a two-year period aimed at finalising regulations for the digital currency and selecting potential issuers.
Finland’s proactive stance in embracing instant payments and exploring the digital euro reflects the country’s commitment to staying at the forefront of modern payment solutions.
According to Fabio Panetta, a senior official at the European Central Bank (ECB), a digital euro could be issued within the next four years by the European Union (EU). A potential first use would be peer-to-peer payments.
Due to concerns about Russia’s war against Ukraine and the rise of private stablecoins such as Facebook’s now-abandoned Libra, the timeline for the central bank digital currency (CBDC), has been moved back and forth.
What would the digital Euro be used for?
At an event at the National College of Ireland, Fabio Panetta, an executive board member of the European Central Bank, or ECB, has said: “The idea would be that let’s say, four years from now, we will be ideally ready to issue the digital euro,” and also expressed his optimism that the CBDC could be launched within the next four years, although it will be a complicated process that hasn’t been done before.
Panetta suggested that a peer-to-peer (P2P) payment solution, which allows transactions between friends, could be the first test ground for the new technology before it spreads to other areas such as online payments or business payments such as physical and online shops.
He said that a P2P payment system that covers large numbers of users in the whole euro area could be a fertile ground for the adoption of a digital currency. Research has shown that the application would have the greatest impact on early adoption.
The ECB began a two-year investigation phase in October to examine issues such as which use cases should be prioritized. However, the ECB is still not sure if it will issue a digital currency. Panetta previously stated that the realization stage, which is due to begin late next year, could last for three years.
Christine Lagarde, President of the ECB, stated in March that the sanctions imposed by the war in Ukraine were a reason to accelerate the plans. However, other EU officials Monday suggested that they are letting their feet off the pedal.
We also have to note that Jurgen Schaaf, an ECB advisor, stated that the EU’s research and experiments on a digital euro are not a guarantee that they will launch a CBDC.
Why is the EU researching a CBDC?
After an industry consortium led Facebook suggested its own cryptocurrency, Libra, the idea of the EU issuing its very own CBDC was born. The Libra project was later renamed Diem and abandoned.
Mairead McGuinness (EU’s financial-services Commissioner) said that there was a feeling of urgency back some time ago, due to the fears of what might happen with private providers. McGuinness said that they will not hurry the research process. They want to move fairly quickly, but “not hastily.”
Panetta stated that recent declines in the crypto market private may be another reason to continue the project.
Stablecoins lack the regulatory safety net that banks have and are, therefore “vulnerable to runs”, he stated. He cited the crash of TerraUSD (UST) from May 9th-13th. The supposedly stablecoin was issued and backed up by the Luna Foundation Guard.
Another example of an unregulated stablecoin is Tether (USDT), which also lost its peg to the USD dollar during the same week. Luckily, the USDT quickly recovered.
Another reason for EU’s urge to research and regulate cryptocurrency is the war between Russia and Ukraine. Following the invasion of Ukraine, the EU and U.S. implemented severe sanctions against Russia. However, there are many concerns over the role of crypto in evading sanctions. This has prompted regulators around the world to accelerate their efforts to regulate the sector.
At the same time, U.S. President Joe Biden issued an executive order regarding crypto Wednesday encouraging federal agencies to adopt a common approach when regulating the sector. He asked the government to evaluate the benefits and risks of creating a digital currency.