News31 Jul 2023

Slovaks are afraid of losing their privacy. They want cash, even though the digital euro is coming

The ongoing discussions on the shape of the digital euro will soon take a real shape. In the autumn, the European institutions are expected to discuss new legislation that will determine how it will be implemented.

According to Peter Ivanka, digital banking expert at Softec, a common European digital currency should be more stable than cryptocurrencies.

On the other hand, whether people will accept it will also depend on how the central bank deals with public fears about loss of privacy. "The solution could be to introduce a limit up to which payments would be anonymous and beyond which they would not," says a digital banking expert.

What does digital currency actually mean and how does it differ from cryptocurrencies? What role will commercial banks play in the introduction of a common digital currency and how will they maintain their fearless position in the market? And why is there an assumption that the introduction of the digital euro could speed up payments?

Will it replace cash?

What is the curent stage of the digital euro at legislative level? Is there any progress?

A legislative proposal was presented at the end of June. In October it should be clear what the digital euro will look like. The proposal should be discussed by the Governing Council of the European Central Bank (ECB). So we are in the pilot phase of shaping the concept.

What do we know today? What form should the digital euro take?

At the moment, these are just general formulations. What they mean is that the digital euro should be accessible to the general public. With the possible exception of small establishments, it should be possible to pay with it everywhere. However, the ECB is also declaring the importance of preserving cash, which is important. People should therefore have the right to cash.

Are the European institutions thus responding to the fears that the digital euro will replace cash?

Yes. When the ECB did a survey on people's attitudes towards a common digital currency, the most frequently raised concern was the loss of privacy. And it is also a response to various legislative initiatives, for example in Austria or Slovakia, which aim to preserve the right to cash.

So are we not heading towards the demise of cash, which is what many fear?

I think not. People are already becoming partially saturated with digital. So this is a response to their fears. But it also has to be said that people are perhaps also worried about the disappearance of the so-called grey economy. Although I think they would find ways to enter it in the digital space as well.

Can we say that digital currency will not be mandatory?

It certainly is. It is formulated as a complement to cash, so it will be an alternative to it. So far, there is no indication that people will be forced into it in any way.

Concerns about loss of privacy

The public's concern stems from the fact that the central bank will monitor money flows. So is there a risk of loss of privacy in transactions?

On one hand, the proposal states that payment security and privacy will be maintained. On the other hand, there is an ambition to combat money laundering. These two concepts go against each other.

If you want to fight money laundering, you have to monitor payments, but on the other hand, there is the promise of privacy. So the statements so far are a bit schizophrenic. The solution could be to introduce a limit up to which payments are anonymous and beyond which they are not.

So are the fears of loosing anonymity justified?

From my point of view, for the time being, yes. They have not been refuted. But we have not yet seen a more detailed proposal for the operation of the currency. There is at least a declaration of the right to cash. We will know more in October.

What's your guess?

I suppose the ECB will have to deal with this problem if it wants to achieve broad public acceptance of the currency. Otherwise, people would have a strong tendency not to switch to the digital euro.

Built on blockchain

How will the system work technologically?

Quite often, blockchain is mentioned in combination with payment systems such as TIPS (Target Instant Payment Settlement, a service designed for processing instant payments, ed.), which could guarantee anonymity.

It would be advantageous if the digital euro was deployed on a new infrastructure. The payment systems typically used by banks today are perhaps 20 or 30 years old. Implementing new technological possibilities would thus speed up payments.

On the other hand, central banks today do not have the necessary infrastructure, so cooperation with commercial banks is likely to be needed here.

What advantages could the digital euro bring over cashless payments?

It should further expand electronic payments. They should be easier and faster. Although there are still a number of options today, such as instant interbank payments, there are still various obstacles, for example cross-border payments.

Competition to traditional banks

Will the digital euro also help to introduce cashless payments to establishments that today, for various reasons, refuse them?

In the context of the legislation, it is said that basic operations with the digital euro will be free of charge. However, there are already solutions today in which establishments do not need a terminal. Merchants therefore have options to accept cashless payments at low fees.

But the introduction of the digital euro is likely to make it even easier and cheaper to pay in shops.

What will be the relationship of the digital euro to cryptocurrencies?

Cryptocurrencies today are decentralised and we don't know the entities behind them. In the case of a digital European currency, it would be the other way around. Cryptocurrencies are therefore also very volatile. We have seen daily movements here of tens of percent. The digital form of the euro should benefit from the advantage of being guaranteed by a central bank, so it will be stable.

Will the digital euro bring competition for banks and their business?

Yes, it does. If the digital euro does indeed transfer the responsibility for running the digital infrastructure to the Central Bank, the question is what will be left for the commercial banks. In such a case, financial transactions would be centralised, which could lead to a loss of privacy to some extent.

On the other hand, a digital euro account should be non-interest-bearing, so there is no attempt to encourage people to save in it. The aim is just to enable payment transactions.


Author of the article: Peter Apolen, Forbes Magazine
Source: Analytik: Slováci sa boja straty súkromia. Chcú hotovosť, hoci prichádza digitálne euro – Forbes 


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