Digital Euro Association Blog

4-part series on the digital Euro: The Digital Euro - on its way to tokenized money.

Aug 3, 2021 12:46:47 PM / by Manuel Klein, Alexander Bechtel

Episode 2: Public Sector Digital Euro (CBDC)

 

In the second episode of the four-part series on the digital Euro, Alexander Bechtel and Manuel Klein discuss the different forms of a public sector digital euro - better known as Central Bank Digital Currency (CBDC). Many people think of a CBDC first and foremost when they think of a digital euro, not least because the ECB also uses this vocabulary in its communication on a CBDC. This is reason enough to take a closer look at this type of the digital euro.

In this episode, Alexander Bechtel and Manuel Klein shed light on the different types of the Digital Euro that can be created by the ECB and on the types of market participants that could use the respective types of a digital Euro. A distinction is made between a digital euro that can only be used by banks for interbank payments and "digital cash" that can be used by all citizens. Furthermore, Alexander and Manuel show that the motivation for introducing the respective CBDC types differs greatly and explain why the introduction of "Digital Cash" is anything but a purely technical debate around blockchain technology.

Alexander and Manuel devote the bulk of the episode to digital cash, so called “retail CBDC”, as this is also the kind of money that is most widely discussed by central banks in publications and research. The different design options of such a digital Euro are presented and the role that commercial banks could play in the provision of digital cash is highlighted. With regard to the role of commercial banks, the advantages and disadvantages of the different designs will be highlighted and the impact on the commercial banking sector will be examined and discussed.

Last but not least, Alexander and Manuel will give an outlook on which form of central bank digital currency is most likely to be implemented and show the different motivations of central banks to issue a CBDC. Finally, they will also discuss what benefits a CBDC could have for end users.

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Tags: Central Bank Digital Currency