Digital Euro Association Blog

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

Aug 4, 2021 9:10:14 AM / by Manuel Klein, Alexander Bechtel

Episode 3: Private Digital Euro

 

In the third episode of the four-part series on the digital Euro, Alexander Bechtel and Manuel Klein discuss the different forms of a private sector digital euro. The central question of this episode is whether the private sector will continue to generate and provide the bulk of the money supply in the future - just as commercial banks already do today. At the latest since the strong media attention around the joint project Diem (formerly Libra) launched by Facebook, so-called "stablecoins" issued by private companies which represent the USD or EUR on a blockchain are all over the news. But what exactly are these stablecoins? What forms do they take and which of them would be suitable to be used as a scaleable euro-denominated means of payment in the real economy?

In the beginning of the episode, Alexander and Manuel define the term stablecoin and describe the different types of stablecoins that already exist today and will exist in the future. They focus primarily on the different assets that back these tokens and give them their stable value. In the course of the episode, they analyze the different types of stablecoins, their issuers, as well as their applications. Alexander and Manuel further show why many of the current stablecoin projects will not be able to create a fungible and thus fully-fledged euro token and explain which regulations exist that try to solve this problem. The focus of the analysis lies on the proximity of the private digital euro to central bank money, which is essential for the stability of the token itself but also of the financial and monetary system itself, as well as for securing the effectiveness of monetary policy.

Last but not least, Alexander and Manuel address the exciting question of whether and how new money is created by the private sector in a system with digital euros. Especially with regard to the Diem stablecoin project, this question plays an important and decisive role, as central banks worldwide fear to lose control over money creation and monetary policy due to competition from stablecoins.

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Tags: Central Bank Digital Currency