An analytical paper released by the European Parliament’s Committee on Economic and Monetary Affairs has given the digital euro a mixed review. The title of the paper summed up its position: “Digital Euro: When in doubt, abstain (but be prepared).”

The paper was written by economist Ignazio Angeloni at the request of the parliamentary committee to assess the preparations for the launch of a digital euro. Angeloni looked at 10 issues that a “prospective digital euro” (PDE) would face, concentrating on its downsides.

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Angeloni wrote that a digital euro would put the European Central Bank (ECB) in the position of competing with commercial banks for deposits, but collaborating with them as commercial banks provide frontend services to digital euro users under an intermediated model:

“This generates potentially adverse incentives and warrants a well-designed compensation structure for the services provided by banks. The ECB reports give no information on this.”

The introduction of a digital euro may have a disruptive effect that the ECB is unprepared for, Angeloni found. The digital currency would have to be attractive enough to find a customer base, but not so attractive that it undermined the banking system. If the digital euro paid interest, it would have to be managed separately from cash interest rates, which could encourage arbitrage operations.

Cointelegraph

Cointelegraph

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