It is currency wars, version 2.0. Between Bitcoin and Libra, under the name Diem, central banks want to maintain their monopoly. The ECB is working with the digital euro. Switzerland is moving forward.
Imagine for a moment that you could have a euro account directly with the European Central Bank (ECB), perhaps even at an interest rate? The digital euro or digital euro would be the ultimate form of currency, most likely because it is deposited at the source, in the organization that prints the banknotes and manages the monetary policy. What would happen to the commercial banks that still have deposits? Are banks disappearing from the landscape?
We are not there yet. But the ECB is working to create a digital euro. And he’s not the only one. From Sweden to China via Switzerland, we think. The Swiss National Bank also announced on Thursday that it had conducted a feasibility study on the currency in collaboration with the Bank for International Settlements (BIS), in collaboration with the “central bank”. However, a project called Helvetia does not apply to individuals, at least initially.
The pandemic has further increased the attractiveness of digital payments, including contactless payments.
There is no doubt that the first central bank to implement such a digital currency will have a competitive advantage. Let’s face it, central banks are also competing with each other, their currencies are competing. However, the issuing institutions have a common will: they want to maintain their monopoly at all costs. That’s why they take a dark view of the new interest in bitcoin. The latter presents it as protection against the printing press that central banks frequently use, again at $ 20,000. Above all, it has managed to attract large investors. Renowned managers like Stanley Druckenmiller, former right-hander Soros, and Paul Tudor Jones have also been subject to the sirens of this cryptocurrency. But bitcoin, which retains a highly speculative flavor, is probably not the most dangerous asset in the face of issuing institutions. The most critical has been the pound, the currency announced by Facebook in 2019.. Because here we are talking about potentially almost 3 billion potential users. There have been criticisms from regulators (fear of the stability of the financial system, risks of money laundering, etc.), where the initial partners, Visa, PayPal and Mastercard, quickly left the ship.
This week, the Libra association that is piloting the project announced that it has changed its name to “Diem”. The project, which brings together companies like Spotify, Uber, Lyft, Iliad and Coinbase, has mostly revised its intentions downwards, taking into account the regulators ’notes. The association is valid you will soon launch “stablecoin”, a currency associated with another asset, in this case the dollar.
The pressure from the central banks will not calm down. The pandemic has further increased the attractiveness of digital payments, including contactless payments, although the figures show that citizens value their money. That is why, on behalf of the European Central Bank, Christine Lagard and Fabio Panetta argue that a digital euro would exist in cash together.
The ECB has not yet officially decided to launch this digital euro. One report also highlights the risks to financial stability. Imagine a new banking crisis like in 2008. Savers would soon be leaving regular bank accounts with the ECB to switch to digital (safer) euros. A kind of big digital “bank run” capable of creating real chaos.
The questions, therefore, are numerous. Could the ECB pass over the heads of banks and hold individuals accountable? Should these ECB deposits be limited in terms of amount? Should they have an interest rate? The answers to these questions will shape the financial landscape for decades to come.