Europe needs an official digital currency, and it better be run by a central bank than a private corporation. But governments need to act quickly; once another currency has been established, it will be challenging for a digital euro to be competitive.
Europe needs a digital euro, at least if you ask Thomas Heilmann, member of the German Parliament and blockchain frontrunner of the CDU.
The CDU is Germany’s center-right political party that is currently leading the coalition government. Whatever comes out of the CDU regarding blockchain, Heilmann has most likely been involved.
His party has recently published a paper suggesting a wide range of government-led blockchain initiatives in Germany. Heilman was a co-author and the driver behind the paper’s publication.
A “Digital Euro” was one of the suggestions included in the paper. In a recent interview in WirtschaftsWoche, a leading German business magazine, Heilmann explained why Europe needs a digital currency, and why we need it now.
Other cryptocurrencies have failed as means of payment
Digital currencies come with a range of advantages compared to fiat currencies. As they are integrated into the digital ecosystem, they are a more effective means of payment in e-commerce transactions, enable cheaper cross-border transactions, and allow for faster money transfers.
However, most current cryptocurrencies like Bitcoin have proven ineffective as a means of payment, according to Heilmann. Price volatility is too high, meaning the value fluctuates which puts consumers at risk.
A digital Euro, issued by the European Central Bank (ECB), could be pegged to a basket of assets or fiat currencies, keeping its value stable. Moreover, trust in the institution of the ECB will further contribute to the currency’s value.
Not everyone within the crypto community will agree to the latter reasoning, but compared to Bitcoin, at least there will be some form of accountability. Heilmann also warns that a currency needs to be managed by the central bank so that it can counteract inflation and financial shock waves.
Libra has increased pressure on lawmakers
Governments need to act. Digital currencies come with too many advantages. It’s just a matter of time until there will be one widely adopted cryptocurrency.
Currently, it looks as if Facebook’s Libra could become the first digital currency to achieve a global level of adoption as a means of payment – much to the disapproval of politicians and regulators, who are vividly ringing the alarm bells.
What’s the alternative to Libra? Banning cryptocurrencies is no solution. Thus, if governments don’t want a private corporation to run the digital currency system, they need to come up with their own regulated, government-run alternative.
Issuing a digital euro wouldn’t even be difficult. Heilmann believes it could be done within just a few months. What will take more time, however, is the political decision-making process.
Heilmann stresses urgency. Once a privately-run digital currency has been established, or another government has taken over the lead, for example the U.S. or China, it will be difficult for a digital euro to become a competitive currency.