Saturday , September 25 2021

The digital currency war is declared

It’s a currency war, version 2.0. Between bitcoin and Libra, renamed Diem, the central bank wanted to maintain their monopoly. The ECB is working on the digital euro. Switzerland is advancing.

Imagine for a moment that you could have a direct euro account with the European Central Bank (ECB), maybe even with an interest rate? This digital euro or digital euro will be the final, safest form of currency, because it is stored at the source, with institutions that print banknotes and manage monetary policy. What happens to commercial banks where we all still have deposits? Are banks disappearing from the landscape?

We’re not there yet. But the ECB is indeed working on the creation of a digital euro. And he’s not the only one. From Sweden to China via Switzerland, we thought about it. The Swiss National Bank even announced Thursday that it had completed a feasibility study for such a currency in collaboration with the Bank for International Settlements (BIS), the “central bank”. However, the project called Helvetia did not concern the individual, at least initially.

The pandemic has further increased the appeal of digital payments, including contactless payments.

Undoubtedly, the first central banks to implement such a digital currency will enjoy a competitive advantage. Because let’s face it, central banks are also in competition with each other, their currencies are competing. The issuing institutions, however, have the same wish: they wish to maintain their monetary monopoly at all costs. This is why they are taking a dim view of the renewed interest in bitcoin. The latter, which presented itself as a bulwark against the overused central bank printing press, returned to woo with $ 20,000. Above all, it managed to attract large investors. Even well-known managers like Stanley Druckenmiller, Soros’ former right hand man, and Paul Tudor Jones have given up on this cryptocurrency siren. But bitcoin, which maintains a very speculative flavor, may not be the most dangerous asset in the eyes of issuing institutions. The one that has been criticized the most is Libra, the currency announced in 2019 by Facebook.. Because here we are potentially talking about nearly 3 billion potential users. The criticism came from regulators (concerns about financial system stability, risk of money laundering, etc.) so that the initial partners, Visa, PayPal and Mastercard, immediately left the ship.

This week, the Libra Association, which is piloting the project, announced a name change to “Diem.” The project, which brings together companies such as Spotify, Uber, Lyft, Iliad or Coinbase, has largely revised its ambitions downward, taking regulatory statements into account. Association is important immediately launched “stablecoins”, the currency associated with another asset, in this case the dollar.

The pressure on the central bank will not abate. The pandemic has further increased the appeal of digital payments, including contactless payments, even though the figures show that residents still value their money. This is why on the part of the European Central Bank, Christine Lagarde and Fabio Panetta argue that the digital euro will exist alongside cash.

The ECB has not officially taken the decision to launch such a digital euro. In a report, it also highlights risks to financial stability. Because let’s imagine a new banking crisis like in 2008. Savers will soon abandon their traditional bank accounts to switch to digital euros (safer) with the ECB. Some kind of huge digital “bank run” capable of creating real chaos.

Hence, the questions remain numerous. Can the ECB go beyond the head of the bank and offer accounts to individuals? Should the amount of deposits in the ECB be limited? Should they have an interest rate? The answers to these questions will shape the financial landscape for decades to come.

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