A draft paper that will be submitted to finance ministers on Monday suggests that merchants in the Eurozone may be forced to accept the digital euro as legal cash. Payments will be regarded as legally binding if the central bank digital currency (CBDC) is given the same status as actual notes and coins. Mandatory acceptance at face value will also be necessary.
The network implications of this action are anticipated to grow and could perhaps have an impact on how the digital euro is distributed. To ensure proportional application while balancing the concepts of contractual freedom and mandatory acceptance, the report also recommends that exemptions be taken into account.
While discussing the digital euro in January, Eurozone ministers came to the conclusion that it shouldn’t be programmable since doing so would undermine the currency’s fungibility. The European Central Bank (ECB) is now working on technical specifics, such as prioritising potential uses, and will determine whether to issue the digital euro in the fall. Any legislation required to support the CBDC must be agreed upon by national governments in the European Union (EU).
The head of the European Commission’s financial services division, Mairead McGuinness, announced last week that a proposed bill looking at the digital euro will also take into account anti-money laundering regulations and compensation for individuals involved in its distribution.
The digital euro is a component of a larger CBDC trend, with other nations considering their own versions. In the creation of its digital yuan, which is presently being tested in several places, China has been a pioneer. The US Federal Reserve is also looking into the idea of a digital currency, with Federal Reserve Chair Jerome Powell stating that the public’s backing would determine whether a CBDC is introduced. India has been investigating a digital rupee since 2018 and has already started its pilot program.
Increased financial inclusion, lower transaction costs, and improved payment system resilience are among potential advantages of a CBDC. But, there are also worries about cybersecurity, privacy, and the potential for CBDCs to undermine existing banks.