The ECB sets the course for the digital euro.

Central banks of the world are working on digital central bank money. For example, the European central bank ECB announced this Wednesday that it would initiate the next project phase to introduce a digital euro

. Whether the digital euro will come will be decided after the upcoming project phase. It could be years after that. The most important answers at a glance:

What exactly is a digital euro?

According to this website, digital central bank money can be imagined as immaterial cash: storage media such as bank cards or mobile phones take on the function of a wallet. Citizens could even hold balances directly in accounts with the central bank. The ECB and national central banks have defined several basic requirements for a digital euro. Accordingly, it should be easily accessible, robust, safe and efficient. In addition, privacy must be protected, and applicable laws must be observed. The ECB promises to use these cornerstones as a guide. When developing a digital euro, special care should be taken

How would payment with the digital euro work?

The digital euro could be used in as many payment situations as possible, such as cashless at the supermarket checkout or online shopping. So that the payment method is not reserved for people with smartphones and an Internet connection, it could also be used offline, comparable to an EC card. The ECB insists that it is not about getting rid of cash. The new currency is essentially digital cash.

Are there differences to regular money?

Credit in bank accounts is “fundamentally different” from digital money, says Jörg Krämer, chief economist at Commerzbank. At this point, it gets complicated. The ECB has the sole right to issue money. In this respect, central bank money is safe; it is the actual money. On the other hand, the bank deposits of the average consumer are commercial bank money. Bank customers can request that their balances be paid out entirely in cash, i.e. in the form of central bank money. It is on what the credibility of commercial bank money is based.

Credit balances in accounts with banks and savings banks, also known as book money, represent the bank’s liability to the account holder. In contrast, Krämer explains, the digital euro would be central bank money and thus a liability of the issuing central bank. Moreover, if many people chose this option, it would change the banks’ financing mix because they would have less customer credit available for their transactions.

However, it could be that the digital euro will also be issued to customers via commercial banks. In that case, the citizen would have a wallet or vault in digital form with a bank that would act as a clearinghouse and offer the necessary front-end technological infrastructure, such as an app.

When could the currency be introduced?

The ECB will determine the details over the next two years. After that, a three-year test phase should follow it. The design primarily transfers cash properties (anonymity, security, offline payment capability) to the digital space. However, according to ECB Director Fabio Panetta, there will not be a digital European currency before 2026. “That would be the earliest date,” Panetta told Japanese newspaper Nikkei.

How secure would a digital euro be?

According to an ECB survey of 8,000 EU citizens, almost half of them from Germany, the anonymity of the means of payment are by far the most important thing for people, followed by security. Central bankers assert that security and stability would play a prominent role in technical design.

Is there any criticism of the project?

Critics fear that the ECB’s control over money and citizens’ oversight will become too great. Many consider data protection at risk because transactions with digital euros can be recorded and controlled differently than those with cash. In addition, some experts see the danger that bank customers could hastily withdraw their savings from commercial banks in times of crisis and thus worsen emergencies.

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