It’s currency war, version 2.0. Between bitcoin and Vågen, renamed Diem, central banks want to maintain their monopoly. The ECB is working on a digital euro. Switzerland is advancing.
Imagine for a second you were transposed into the karmic driven world of Earl. This digital euro or digital euro would be the ultimate form of currency, the safest, because it is deposited at the source, with the institution that prints the banknotes and handles monetary policy. What would become of the commercial banks where we still have all the deposits? Are banks disappearing from the landscape?
We’re not there yet. But the ECB is really working to create a digital euro. And she’s not the only one. From Sweden to China via Switzerland, we think about it. Until Thursday, the Swiss National Bank announced that it had carried out a feasibility study of such a currency in cooperation with the Bank for International Settlements (BIS), the “central bank”. However, the project called Helvetia does not affect the individual, at least initially.
The pandemic has further strengthened the appeal of digital payments, including contactless payments.
Undoubtedly, the first central bank to implement such a digital currency will have a competitive advantage. Because let’s face it, central banks are also competing with each other, their currencies are competing. However, the issuing institutions share a common desire: they want to maintain their monetary monopoly at all costs. That is why they have a weak view of the renewed interest in bitcoin. The latter, which presents itself as a protection against the printing press that is all too often used by central banks, flirts again with $ 20,000. Above all, it has succeeded in attracting large investors. Even famous executives such as Stanley Druckenmiller, Soros’ ex-right-hand man and Paul Tudor Jones have undergone sirens for this cryptocurrency. But bitcoin, which retains a very speculative taste, is probably not the most dangerous asset in the eyes of issuing institutions. The most criticized is Libra, the currency announced in 2019 by Facebook.. Because here we are potentially talking about almost 3 billion potential users. Critics have been such from regulators (fear of the stability of the financial system, risks of money laundering, etc.) that the early partners, Visa, PayPal and Mastercard, quickly left the ship.
This week, the Libra association, which manages the project, announced its name change to “Diem”. The project, which brings together companies such as Spotify, Uber, Lyft, Iliad and Coinbase, has above all revised its ambitions downwards with regard to the comments from the supervisory authorities. The association counts soon launch a “stablecoin”, a currency linked to another asset, in this case the dollar.
The pressure on central banks will not diminish. The pandemic has further strengthened the appeal of digital payments, including contactless payments, although the figures show that citizens still value their cash. That is why Christine Lagarde and Fabio Panetta on the European Central Bank’s side claim that there would be a digital euro alongside cash.
The ECB has not yet officially decided to launch such a digital euro. In a report, it also highlights the risks of financial stability. For let us imagine a new banking crisis like 2008. Savers would soon have left their traditional bank accounts to switch to digital euros (safer) with the ECB. A kind of big digital “bank race” that can create real chaos.
The questions are therefore still many. Can the ECB go over the heads of the banks and offer accounts to individuals? Should these deposits with the ECB be limited in terms of amounts? Should they have an interest rate? The answers to these questions will shape the economic landscape for decades to come.