The impending launch of a digital version of the euro has been a topic of much discussion in recent years. Seen as a European answer to the rise of digital currencies and an attempt to modernize its monetary system, the European Union’s commitment towards a digital euro has garnered both anticipation and skepticism.

With the global race to launch central bank digital currencies (CBDCs) heating up, European economists are raising eyebrows over the design and intent of the European Central Bank’s (ECB) approach to their Central Bank Digital Currency (CBDC).

Many financial experts and academics closely observing this journey have expressed concerns over whether the project will truly cater to the public or primarily serve banking intermediaries. A report from University of Bern economists Cyril Monnetm and Dirk Niepelt is the latest to throw a spotlight on design flaws in the CBDC initiative.

In the comprehensive report penned by Monnetm and Niepelt, the ECB’s design choices for the digital euro are critically examined. The researchers assert that the project’s design choices raise doubts about the ECB’s objectives and strategy, potentially leading to the digital euro’s failure upon launch.

A significant point of contention in the report revolves around the digital euro’s design, which appears to lean heavily toward protecting intermediary banks. The authors express concerns that consumer holding limits and lower limits for merchants might make the CBDC less attractive for mainstream adoption. They also worry that the ECB views these limiting features as permanent rather than provisional.

Additionally, the report highlights the ECB’s commitment to safeguarding the business model of banks, which raises questions about whether banks would genuinely promote a digital currency that could potentially undercut their revenue streams. The researchers suggest that banks may only embrace the digital euro if related bank services prove to be even more profitable.

The report further brings attention to potential challenges facing the digital euro. Imposing a negative interest premium during financial distress periods could hinder its adoption by intermediaries, making its successful rollout more challenging. Moreover, the study suggests that the private sector will likely overshadow the digital euro in terms of user-friendliness and convenience, potentially impacting its popularity.

Given the prevailing sentiments, many European citizens may have reservations about the ECB’s commitment to privacy protection and resistance to censorship. These factors could influence public acceptance and adoption of the digital euro.

As the digital euro project remains in its formative phase, questions and challenges abound. While ECB officials have set an optimistic target date of 2027 for the currency’s launch, the concerns raised by economists and experts underline the need for careful consideration of design choices. The road ahead undoubtedly requires addressing these challenges to ensure that the digital euro can fulfill its objectives and cater to the needs of both financial institutions and the public.

Disclaimer: The information provided in this research report is for informational purposes only and should not be interpreted as financial or investment advice. The NFT and cryptocurrency market is highly volatile, and readers should conduct thorough research before making any investment decisions.