Europe's Digital Euro

Table of Contents

Context

The European Central Bank (ECB) has taken up a project to create a central bank digital currency (CBDC) that could serve as a complement to cash in the Eurozone.

Key Features of the Digital Euro

Central Bank-Issued: Unlike cryptocurrencies or private digital payments, the digital euro is issued directly by the ECB, providing users with a safe, stable, and government-backed digital currency.
Accessible to All: Digital euro will be accessible to citizens across the Eurozone, allowing for everyday use in transactions via digital wallets.
Offline and Online Payments: Users could make offline and online payments directly from their digital wallets using Bluetooth, browser extensions or smartphone contacts.
Cost-Effective Microtransactions: The digital euro can facilitate micropayments, which are often costly due to existing bank fees.

Central Bank Digital Currency (CBDC)

● It is a digital form of national currency issued and regulated by a country’s central bank, representing a digital version of physical cash and legal tender.

● It can also be programmed for certain selected users or within a specific region of a country.

● Types of CBDC

○ Retail CBDC: CBDC that can be used for people for day-to-day transactions.

○ Wholesale CBDC: CBDC that can be used only by financial institutions such as Banks, NBFCs etc.

● RBI has also launched e-rupee, a digital version of currency notes.

● CBDC/e-rupee appears as a liability on the RBI’s balance sheet.

● Finance Act 2022 amended the RBI Act, enabling it to introduce Central Bank Digital Currency.