The Deutsche Bundesbank, Germany’s central bank, has partnered with MIT’s Digital Currency Initiative (DCI) to explore central bank digital currencies (CBDC). At the project’s unveiling, Joachim Nagel, its president, discussed the upcoming hurdles for a digital euro.
At MIT, Nagel explained to students that the collaborative project aims to develop safety and confidentiality features for Central Bank Digital Currencies (CBDCs). However, a concern arises as many private digital payment systems rely on external providers who have the ability to collect users’ transaction data for their own commercial gains.
“A digital euro would offer the highest possible level of privacy. The Eurosystem would not have access to digital euro users’ personal information. Consumers would gain more control over their personal data.”
Nagel pointed out that the existing payment system encounters issues. For instance, German bank cards may not function properly in other Eurozone countries, despite being affiliated with an international payment scheme.
With the rise of digitalization, the Eurosystem is exploring the creation of a “digital counterpart to our traditional cash product,” Nagel mentioned. He spoke about the digital euro in particular, although other proposals like the US Federal Reserve’s FedNow service introduced in July have emerged as alternatives.
Critics have been harsh towards FedNow, but Central Bank Digital Currencies (CBDCs) have received even more criticism. Concerns over privacy and potential impacts on the banking sector are common arguments against CBDCs. Recently, European Central Bank (ECB) officials have become defensive against these criticisms. ECB President Christine Lagarde labeled the digital euro as a topic of conspiracy theories in September, while other ECB officials have criticized the banking industry for not giving sufficient thought to CBDCs.
Nagel acknowledged to MIT students that the digital euro, serving as a “risk-free asset,” could potentially exacerbate economic instability during turbulent periods by weakening banks. To mitigate this risk, limits will be imposed on the digital euro, Nagel explained. He further mentioned that the general public currently has limited comprehension of the digital euro initiative, which is presently in its early development stages.
The DCI has collaborated with the Federal Reserve Bank of Boston in the US, as well as the central banks of Canada and the UK, on their respective projects exploring the possibility of a digital currency, referred to as Project Hamilton.
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2024-04-17 21:48