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ECB Seeks to Quell German Doubts on Digital Euro

The European Central Bank sought on Thursday to alleviate Germany’s apprehensions about the digital euro. It said this form of electronic cash wouldn’t be used to penalize savers nor upend banks.

The digital euro would not replace physical cash. This was according to ECB board member Fabio Panetta and official Ulrich Bindseil in an op-ed in Frankfurter Allgemeine Zeitung.

In the article, the two said that the ECB is by no means planning to use a digital euro to enforce more negative interest rates. As long as there is cash, it can always be held at an interest rate of zero percent, they added.

Within the next five years, the ECB is exploring the launch of a digital version of the euro. This is to stem competition from cryptocurrencies like Bitcoin. Moreover, stablecoins such as Facebook proposed Diem, which are backed by official currencies.

ECB’s main shareholder Germany’s Bundesbank, however, has been lukewarm about the project launch. Moreover, a digital euro would be “catastrophic for savers,” a popular magazine wrote. 

Officials from the German central bank have often stressed that a digital euro could pose risks to banks. They said they should study it thoroughly before they make any decisions.

However, the digital euro could become competitive with bank deposits, the two said. The digital euro would ensure the euro zone’s independence from foreign companies and powers, the two added.

Recently the ECB told EU lawmakers it wants veto power on the launch of stablecoins in the eurozone. Moreover, a greater role in their supervision.

Germany Bridges Blockchain and Euro

In Germany, a technology that allows investors to buy and sell securities on the blockchain in return for central bank money has been developed. This bridges the gap between two worlds that once seemed irreconcilable.

Distributed Ledger is the technology that powers bitcoin and other cryptocurrencies. Institutions globally currently experiment with it for settling trades in official money. 

For this project, the Bundesbank has partnered with Deutsche Börse and the German government’s debt agency. Its solution was the first for those who sell securities on the blockchain, it said on Wednesday. It made it possible for them to receive proceeds on their account at the central bank.

The company said it could scale up the technology to the entire eurozone well before the ECB launches its first digital euro.

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