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Digital euro could come as soon as 2026 — ECB official

May 16, 2022 Coin Telegraph

CBDC

Commenting on the recent market volatility, Fabio Panetta also said stablecoins were still “vulnerable to runs,” just as investing in cryptocurrencies carried certain risks.

Fabio Panetta, an executive board member of the European Central Bank, or ECB, has said that a digital euro could come within four years, potentially designed with a person-to-person payment solution.

In a Monday speech at the National College of Ireland, Panetta said the ECB could start the development and testing of solutions toward providing a digital euro for members of the European Union in 2023, a phase that could take up to three years. He added that making the digital currency legal tender and for use in P2P payments could help promote adoption.

Panetta also commented on the recent market volatility for cryptocurrencies, with TerraUSD (UST) depegging from the U.S. dollar and the price of many major coins including Bitcoin (BTC) dropping. According to the ECB official, stablecoins, including Tether (USDT), were not “risk-free” and still “vulnerable to runs,” just as investing in cryptocurrencies carried certain risks.

“Recent developments in the market for crypto-assets illustrate that it is an illusion to believe that private instruments can act as money when they cannot be converted at par into public money at all times,” said Panetta. “Despite claims that cryptos are a trustworthy form of "currency free from public control, they are too risky to act as a reliable means of payment. They behave more like speculative assets and raise multiple public policy and financial stability concerns.”

The case for #Stablecoin #DigitalEuro @ecb Fabio Panetta pic.twitter.com/yZO2BvGrzL
— National College of Ireland (@NCIRL) May 16, 2022

Estimates from many EU officials suggest that legislation and policy focused on the launch of a digital euro could be coming within five years. Panetta said in March that Europeans would be more likely to accept a digital euro aimed at addressing their payment needs, and so also accepted in physical and online stores.

ECB lays out ‘anonymous’ digital euro as public opposes ‘slavecoins’

May 13, 2022 Coin Telegraph

Anonymity

The ECB drops another working paper on the digital euro, causing more outrage from Europeans opposing a central bank digital currency.

The ECB released another working paper on the digital euro, providing an extensive technical analysis of a potential European CBDC and its position in the existing financial system.

Issued on May 13, the working paper aims to study issues like financial intermediation, payment choices and privacy in the digital economy, providing a large number of related algebra-based conclusions.

The study suggests that a “CBDC with anonymity” is preferable to traditional digital payments like bank deposits but it “may become supplanted” by digital currencies or “payment tokens” issued by technology giants.

“This risk would be particularly tangible if those platforms compete with banks in the market for financial services. However, an optionality for data sharing features may result in a widespread CBDC adoption,” the working paper reads.

According to the ECB, one of the main problems of cash is that it cannot be used for more efficient online transitions while it still preserves anonymity. In contrast, bank deposits can be used online but do not provide enough anonymity.

Finally, digital currencies issued by tech platforms “allow merchants to hide from banks but enable platforms to stifle competition,” the ECB wrote, adding:

The European Central Bank (ECB) continues pushing its central bank digital currency (CBDC) project despite Europeans apparently not feeling too much positive about a digital euro.

“An independent digital payment instrument — a CBDC — that allows agents to share their payment data with selected parties can overcome all frictions [...] The introduction of a CBDC with anonymity enables merchants to prevent banks from extracting information from payment flows.”

While the ECB keeps promoting a potential digital euro with anonymity-enabled features, the Europeans are not quite optimistic about any CBDC. According to public feedback from another digital euro consultation, the majority of Europeans are against the adoption of a CBDC in the European Union.

Launched on April 5, the consultation has amassed 14,110 feedback entries at the time of writing, with many opposing the very idea of a central bank-controlled digital currency and associated lack of user privacy. Some online commentators even referred to a CBDC as a “slavecoin,” opposing “digital slavery” potentially introduced by such financial instruments.

Why don't you read citizens comments?
100% of the citizens are against a CBDC. It's a mass surveillance panopticon nightmare. Programmable expiration. Negative interest rates. Freedom killer.https://t.co/leJJ64UMn9
— Bitcoin Comfy (@BitcoinComfy) May 13, 2022

“The digital euro in the sense of the EU referral is not compatible with either the protection of privacy or with data protection regulations. [...] A control system for the small guarantors requires,” Austrian citizen Schmidl Andreas wrote.

“I'm totally against the introduction of a digital euro because I don't want to be dependent on the internet when I buy something. I strictly reject the digital euro, because it leads to total control and restricts our fundamental rights and freedoms,” another anonymous user wrote.

As previously reported by Cointelegraph, the question of user privacy has emerged as one of the biggest problems associated with central bank digital currencies. This quickly became a big problem for global regulators and governments as they need to prevent illicit financial activity while also preserving confidentiality.

According to a previous digital euro public consultation released in April 2021, user privacy was considered the most important feature of a digital euro by both citizens and professionals in the European Union.

There are a number of other problems associated with a digital euro, including the alleged lack of demand. Jonas Gross, chairman of the Digital Euro Association, told Cointelegraph in April the primary aim of the digital euro is still not clear. Last year, regulatory executive Pablo Urbiola at Spanish bank BBVA argued that it was not exactly clear what kind of customer demand the digital euro was supposed to meet.

According to European Commission finance chief Mairead McGuinness, the ECB still expects a prototype CBDC sometime in late-2023.

ECB Favors Transparency Over Privacy in Digital Euro Design, Presentation Reveals

May 5, 2022 Bitcoin.com

Eurosystem Seeks Providers of Prototype Payment Solutions for Digital Euro

May 1, 2022 Bitcoin.com

ECB, Eurosystem begins experimental prototyping of digital euro customer interface

April 29, 2022 Coin Telegraph

CBDC

Up to five banks or other payment services providers will be selected to participate without compensation in the development of the digital euro front end.

Progress will continue on the development of the digital euro as the European Central Bank (ECB) and Eurosystem have begun looking for companies to participate in an exercise to prototype customer-facing payments services. Payment service providers, banks and other relevant companies were invited to express interest in the project in an announcement released Thursday.

Eurosystem, which comprises the ECB and the national central banks of countries that use the euro, stated that it will select up to five front-end providers on the basis of their capabilities and the use cases they present. While participants are not required to have previous experience with the service they will prototype, experience will be considered in the selection process.

The prototype providers will be expected to develop front-end applications in accordance with the specifications of the system’s existing backend and interface. They will be free to provide feedback on the existing system, including how it can meet their technical requirements, and they will be welcome to propose additional value-added services. Participants will not be paid for their efforts but may be included in further steps in digital euro development.

The application deadline for the project is May 20, 2022. The project will begin in August and is expected to conclude in the first quarter of next year. The investigative phase of digital euro experimentation will end in October 2023. At that time, a decision from the Eurosystem Governing Council is expected to be made on the development of a real-world digital euro central bank digital currency (CBDC).

A step forward for CBDCs. Bank of International Settlement Innovation Hub has completed an experimental CBDC platform pilot for international settlement with the central banks of Australia, Malaysia, Singapore and South Africa. https://t.co/qKlrWT71QG
— Cointelegraph (@Cointelegraph) March 22, 2022

This is the latest in a lengthy series of steps toward a digital euro, which at times has proven to be controversial. Earlier this month, the European Commission received feedback from more than 11,000 people about its digital euro initiative, with members of the public expressing concerns over surveillance and government overreach. Nonetheless, ECB executive board member Fabio Panetta recently expressed the opinion that issuing a digital euro is “likely to become a necessity.”

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ECB needs ‘globally coordinated regulatory action’ on crypto, says official

April 25, 2022 Coin Telegraph

Coin Telegraph

One of Fabio Panetta’s concerns seemed to be how the ECB and lawmakers address the taxation of cryptoassets, describing current requirements as “minimal."

European Central Bank executive board member Fabio Panetta said lawmakers across the world must decide how to regulate cryptocurrencies based on potential risks.

In a written statement for a speech to Columbia University on Monday, Panetta said global policymakers had made some progress in addressing regulatory frameworks on digital assets, but “not swiftly enough to keep pace with the emerging challenges.” According to the ECB official, the world needs crypto regulated based on anti-money laundering and countering the financing of terrorism rules of the Financial Action Task Force, strengthening public disclosure and reporting on regulatory compliance from the industry, and setting up “strict transparency requirements” and “standards of conduct.”

One of Panetta’s chief concerns seemed to be how the central bank and lawmakers address the taxation of cryptoassets, describing current requirements as “minimal” and “very difficult to identify tax-relevant activities.” The ECB official proposed taxing cryptoassets based on Proof-of-Work at a higher rate than other financial instruments based on “negative externalities that lead to sunk costs for society, such as high pollution.”

“We should bring taxation on crypto-assets into line with the taxation of other instruments and aim for alignment across jurisdictions, given the global nature of the crypto market,” said Panetta. “The introduction of reporting obligations for transactions above certain thresholds, as just recently proposed by the Organisation for Economic Co-operation and Development (OECD), would enhance transparency and combat tax evasion.”

Globally coordinated efforts are needed to bring crypto-assets into a regulatory framework, says Executive Board member Fabio Panetta at @Columbia. We must not repeat past mistakes by waiting for the bubble to burst before acting https://t.co/dGo0HV0KmL

1/5 pic.twitter.com/2MpmkmtoG4
— European Central Bank (@ecb) April 25, 2022

According to Panetta, Europe is “leading the way” in bringing cryptocurrencies into its regulatory purview, while the United States is working to supervise crypto service providers over perceived risks. He pointed to the Regulation of Markets in Crypto-Assets, or MiCA, as a step toward creating a “harmonised European approach” to crypto as well as the global authority Financial Stability Board cooperating with other financial regulators.

“We need to make coordinated efforts at the global level to bring crypto-assets into the regulatory purview. And we need to ensure that they are subject to standards in line with those applied to the financial system [...] We should make faster progress if we want to ensure that crypto-assets do not trigger a lawless frenzy of risk-taking.”

The ECB has been working on the development of a central bank digital currency, with legislation on a digital euro expected in 2023. ECB president Christine Lagarde has previously hinted the central bank could roll out the digital currency by 2025.

‘There are already digital means of payment:’ EU Commission gets 11,000 public comments on CBDC project

April 19, 2022 Coin Telegraph

CBDC

Less than two weeks after the consultation process' start, the prevalent mood in the comments section appears quite negative.

In less than two weeks that passed since the European Commission opened its "Digital euro for the EU" initiative up to public consultation, more than 11,000 individuals and organizations left their feedback on the website. The feedback section will be open until June 14.

Besides the open-ended comments section on the website, there is a targeted consultation questionnaire that aims to collect information from the industry representatives, authorities and experts regarding such aspects of the prospective digital euro as privacy and data protection, AML/CFT (Anti-Money Laundering/Combatting the Financing of Terrorism) rules, the impact on financial stability and users’ needs and expectations.

The consultation process predates legislative consideration of the digital euro, which is expected to be scheduled in 2023.

As crypto advocate Patrick Hansen noted, in the last year’s round of consultations on the digital euro, the majority of respondents spoke out in favor of payments being a private matter. Despite that, the European Commission's Commissioner for Economy Paolo Gentiloni stated that “a completely anonymous digital euro is not desirable.”

A review of a sample of the public feedback section's content revealed the existence of a certain discontent with the project in general. For example, as an anonymous comment in German goes:

“NO! There are already digital means of payment! So what is CBDC for [...] even more surveillance, prevention of bank runs, addiction and the consequent enslavement of mankind? This does not prevent money laundering; this already exists on a large scale for the top 10,000 in many tax havens e.g. Cayman Islands, Macau, Dubai, etc.”

Another German-language commentator, Michael Hagmüller, also emphasizes the fear of governmental overreach that could be made possible by the adoption of a single digital currency:

“I am against a digital euro for the EU. My concern is that basic freedoms can also be endangered here and authoritarian governments then have total control. The example of the Maastricht criteria shows that the previous governments do not follow the rules and with a digital euro the state could do what it wants with its citizens and suppress any opposition.”

Notably, it is the German language that dominates the public comments section, and the negative sentiment towards the digital euro seems to be prevalent across these posts. It took scrolling through 21 pages to encounter the first opinion in a different language, Dutch. That one also attacked the initiative, albeit in a more moderate manner. Marcel Diepstra opined that the EU should concentrate on proper regulations for crypto, and not on its own CBDC:

“Over the last 13 years, we have seen that cryptographically secured digital currencies can be secured and trusted while being completely decentralized. When properly set up, the currency cannot be altered anymore without consent of the majority of all stakeholders.”

There is also conspicuous anxiety about the possibility of further power consolidation in the hands of the EU’s biggest economies, expressed in the comments of the smaller member states' citizens. For one, Milan Golier from Slovakia called for the sovereignty of the Union’s members to be preserved:

“Neither I nor my whole family agrees. I think the EU is going too far, the economic aid group between sovereign states is slowly becoming a dictatorial system run by two big players, we certainly did not want this.”

Others expressed dissatisfaction with the general process of money virtualization, which is supposed to receive a major boost should the pan-European digital currency be created. Marie Rommelaere from Belgium wrote:

“For me, this digital euro is an aberration which confirms the debt-money in which we are unfortunately mired. Neither euro nor any digital currency. Let us find the currency guaranteed by tangible reserves such as gold for example.”

Both the optimism over the volume of feedback should be taken with a grain of salt as the vast majority of comments come in a form of anonymous short remarks, usually taking a negative stance on the initiative. These are not necessarily an accurate representation of what most EU citizens think on the matter.

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ECB

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