The European Commission on Wednesday unveiled a proposal for the digital version of the Euro.
The release of the proposal has further increased the possibility of a digital euro currency despite criticism from banks highlighting the risk the move would have on their growth and relevance.
The President of the European Central Bank (ECB), Christine Lagarde, floated the idea in 2020 in a bid to ensure Europe controls the framework for a digital euro instead of a private entity from a non-European Union country leading the innovation of a digital version of the currency.
Lagarde suggested the digital euro development to keep the EU ahead of private sector innovation as countries across the world begin to consider digital versions of their currencies amid changes in the way people spend or use money.
The digital euro which is expected to come into full circulation by 2027 will only be available to EU citizens and visitors in Europe.
However, for the digital euro to go into circulation, the European Commission and the ECB need the vote of the 27 member states in the EU and the European Parliament.
“Given that the euro is already the world’s second most-traded currency, it is not an area where it can afford to stay behind the curve. We need to move ahead with a digital currency,” the commission vice president, Valdis Dombrovskis, told journalists in Brussels.
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Despite moving forward with the proposal amid concerns among banks, the ECB and the EC are yet to convince all members of the EU.
A Member of the German Parliament, Markus Ferber, said the ECB and the commission are yet to give a compelling reason why European countries need the digital euro and the added value it would deliver.
The banks are concerned that the digital euro, which will afford users more privacy and provide online as well as offline payment options through digital wallets, will reduce their balance sheets.
Commercial banks in the EU are worried that the digital euro would encourage deposit flight from banks into digital wallets, thereby affecting the banks’ ability to finance the economy.
Calls have been made to set a limit to the amount users of the digital euro can deposit in their digital wallets to protect the banking industry, and the proposal suggested about €3,000 ($3,300) as the limit.
On Wednesday, the European Banking Federation said: “To shield banks from the risk of deposit flight and to limit the negative impact on banks’ ability to finance the economy, it is important to set appropriate and firm limits in holdings and transactions.”