Monday, August 23, 2021

The Digital Euro Begins To Develop In The Midst of The Crypto Boom

The European Central Bank (ECB) has begun to develop the digital euro, one of the organization's major projects in the coming years, which will try to compete with cryptocurrencies in terms of technology and security. However, the process of creating the system could be delayed until 2026.

The digital euro project aims to respond to the accelerated growth of online purchases and transactions, and is part of the progressive disappearance of cash that is expected over the next few years throughout the European Union. However, ECB President Christine Lagarde explained a few months ago that the digital euro "will never replace cash".

Among the advantages of the digital euro, the simplification of payments stands out. After its launch, holders of this currency will be able to have their own virtual wallets, from which they will be able to operate. In addition, the use of blockchain technology will make it possible to track transactions much more securely, a point of interest for reducing tax fraud and the underground economy.

In this regard, the progressive disappearance of cash and the foreseeable growth of the digital euro will put an end to the well-known "With VAT or without VAT?". According to a study carried out in Italy, the State could collect up to an additional 30 billion euros corresponding to this tax each year. In addition, the digital euro will allow currency exchanges and international transactions to be carried out much more quickly and cheaply, a fundamental aspect in the midst of the growth of e-commerce that could be very useful for European companies.

At the moment, the digital euro is in the testing phase, also in Spain. Santander, BBVA, Sabadell, CaixaBank and Bankia are the five entities in charge of testing the system, led by Iberpay, the company that successfully launched the Bizum tool. Although the tests should have begun in August, they have finally started in September. A small delay that should not eliminate a transition that is here to stay.

Does the digital euro seek to compete with cryptocurrencies?

The creation of the digital euro seeks, rather than compete, to place the European currency at the technological forefront that cryptocurrencies have been introducing for years. Beyond this, it is difficult for them to compete with each other, since their basic concepts are different.

While the digital euro will continue to depend on a central bank and specific monetary policies, cryptocurrencies are decentralized assets, whose value does not depend on anything other than the supply and demand of the moment.

Moreover, the development of the digital euro also responds to an interest in imitating the initiatives taken in Russia or China, which have already created their own digital currencies, always linked to the country's official currency, the ruble and the yuan.

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