From Athens, the ECB will announce the digital euro – How it will work
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24 replies
I welcome an European alternative to Visa/Mastercard/Amex. I think it could have some at-cost fees, especially to make shops that benefit from the system pay for it instead of all taxpayers. I hope it will respect privacy, and not just at first and then start on a slippery slope. Maybe this would then allow shopkeepers to price the different payment options. I think there is legislation now that price cannot depend on payment method.
Well, practically time to see lower transaction fees. It is ridiculous to have all of your money on a bank which can invest them for profit, but you are earning nothing from all of this, and they even charge you to send money to an another bank..
I really don't see the added benefit in this. We can already use our existing money in a digital way.
Doesn't this just complicate things? Am I missing something?
Current transactions have a transaction fee. The digital euro will have maybe lower fees? Or 0 fee for non commercialized transactions?
The digital euro will be available to everyone, not just to people with bank accounts. In some countries, poor people have a hard time getting a bank account.
Privacy. Currently your bank knows what you buy and they can even potentially sell that information. Maybe with digital euro, only the government will know.
Offline. With digital euro you can buy stuff offline, ie without an internet connection. This in theory could also provide the same privacy as cash.
Maybe we can eventually cut the middleman, banks, out of the equation.
Cutting banks out of equation would be nice, but I don’t think they will ever let it happen, they will always lobby for their interests and will find ways to monetize us.
And funnily enough banks always seem to have money to spend on lobbying
The immediate reaction in the thread seems to be something like "what makes it a good alternative to Bitcoin" but it might be that it's aimed more as a competitor to the physical euro.
If the government knows when payments have been made, that eliminates potential for not reporting sales, which I understand is a significant issue in some EU members.
There's also some cost to handling (including security) and maintaining physical currency that doesn't exist with digital currency.
Here's an article arguing that the US -- which has apparently not shown much interest in a "digital dollar" -- should adopt something similar. The rationales it gives seem more aimed at it being an alternative to physical cash:
https://www.nytimes.com/2021/07/22/opinion/cash-digital-currency-central-bank.html
One benefit is security. Cash is vulnerable to loss and theft, a problem for both individuals and businesses, whereas digital currencies are relatively secure. Electronic hacking does pose a risk, but one that can be managed with new technologies.
Digital currencies also benefit the poor and the “unbanked.” It is hard to get a credit card if you don’t have much money, and banks charge fees for low-balance accounts that can make them prohibitively expensive. But a digital dollar would give everyone, including the poor, access to a digital payment system and a portal for basic banking services.
A central-bank digital currency can also be a useful policy tool. Typically, if the Federal Reserve wants to stimulate consumption and investment, it can cut interest rates and make cheap credit available. But if the economy is cratering and the Fed has already cut the short-term interest rate it controls to near zero, its options are limited. If cash were replaced with a digital dollar, however, the Fed could impose a negative interest rate by gradually shrinking the electronic balances in everyone’s digital currency accounts, creating an incentive for consumers to spend and for companies to invest.
That one might not be too popular with users.
I struggle to understand the "poor and unbanked" argument. You will still need a smartphone and an app at the very least? Which is not cheap?
I assume that they're talking about not having the minimum funds available to open an account or not being able to maintain the minimum balance and having the fees for not doing so being significant.
https://www.forbes.com/advisor/banking/bank-account-minimum-deposit-minimum-balance-requirements/
https://www.thebalancemoney.com/typical-minimum-balance-for-traditional-savings-accounts-5204547
The bank is going to make their money by lending out the money you deposit, so they're going to want to have some money kept in the account.
Might also be that "unbanked" is a euphemism for illegal immigrants who don't have bank accounts because they're worried about showing up to immigration enforcement or something. It looks like, while an illegal immigrant won't have a Social Security number, there are ways to get around that.
googles
Or maybe that they immigrated legally from somewhere where banks aren't a very safe place to put money.
https://www.cnbc.com/2021/10/12/more-than-12percent-of-hispanic-households-are-unbanked-why-that-can-cost-a-lot.html
I mean, a mobile phone is going to cost something too, but I think that that's kinda considered to be an essential by a lot of people today. Like, they're going to want to have a phone to have a phone, independently of how they might use that phone to spend money.
Wait, people are paying for private transactions?
The whole society always has to pay for transactions as they require work. You either pay with increased prices, by using other services from the banks that cost something or by leeching off of other people paying for the transaction system. The idea of the digital euro could be to decrease this work by introducing a more efficient system.
The actual work behind a private banktransfer is fractions of cents, including power. Technically you're correct, but in the real world, if you paid the real cost of all your private banktransfers, you could probably cover a years worth with a few nickel (if that).
I truly don't see the benefit of this for countries that already have a good banking system. Every benefit mentioned for this system has been available for years or decades in the Netherlands, or has a functionally identical equivalent.
But I see lots of advantages for people who don't have access to a cheap, good and easy banking system.
You can use public transportation directly with any V-pay, maestro, visa or MasterCard debit- or credit card, or Apple or Google pay nowadays.
If you absolutely must have a chipkaart, you can get one from any ticket machine at a station. No Dutch bank account required.
But aren’t the current fees some nickel per transaction, e. g., if you pay with a credit card? Why are the fees so high currently? I do not think that the banks have such a high margin.
Credit cards are expensive, because their security measures can be circumvented by a moderately good photograph of one. You're paying for all the fraud getting compensated.
But a regular (first-party) bank transfer has no such overhead.
Relative to some other digital system, this is what WP has as ECB goals:
https://en.wikipedia.org/wiki/Digital_euro
Like money, but digital I imagine? Is it really that complicated in a world were we've all used phones and contactless cards rather than cash for a decade now and crypto is a thing?
Would be interesting if there was a limited supply.
Otherwise I don’t see the advantage, it is still being controlled by a central entity.
Depends. With a digital euro, you can safely stash away your money without having allowing private banks to make a profit out of it. Same goes with transactions. Firms like Visa or Mastercard won’t turn a profit out of it. Of course there are many disadvantages as well.
According to OP's article, the ECB is specifically aiming to make the digital euro not viable for storing a bunch of money, so I don't think that that's a target use case.
Indeed, I remembered when the ECB first talked about it (2-3years ago) and I read the article diagonally.
But it still, most people could get rid of their cash bank account as most people earn less than 3k€net per month and just keep a saving account.
All in all, I’d still argue it’s a not-so-bad initiative, especially for small businesses who pay a hefty fee per transactions
And then where would lending and borrowing money come from?
It would still be banks. Owning a bank account would just not be mandatory anymore.
Let's hope they'll use GNU Taler for this. I only heard it being considered in Switzerland.