Eurozone governments are currently engaged in discussions regarding the future of their own digital currency, known as CBDC. The European Central Bank (ECB) is setting goals for the digital currency while Eurogroup secretariat is exploring ways to integrate it into the economy.
Legal Tender Status for CBDC
According to a document prepared by the Eurogroup secretariat, traders in the eurozone may be obliged to accept the digital euro if it is recognised as legal tender. CoinDesk, which has seen the document, reports that giving CBDC the same status as banknotes and coins would mean that payments are legally enforceable and binding at full face value. The document also raises the question of whether exemptions should be considered to ensure proportionate application, balancing the principles of contractual freedom and binding acceptance.
Accelerating Digital Currency Integration
One of the reasons the European Central Bank wants to oblige merchants to accept the digital euro is to create a network effect, where users of a product or service add value to that product for other users. The more users own phones, for instance, the more valuable participation in the network becomes for each user. The positive network effect is expressed by Metcalfe’s law, which states that the value of a network increases in proportion to the square of the number of its users. Another reason is the acceleration of digital currency integration and its popularisation, particularly as not all users are currently able to pay for goods or services using CBDC.
Increasing Public Confidence in the Digital Euro
The Eurogroup secretariat document also highlights the need to increase public confidence in the digital euro. If users can pay with digital currency for everyday items like a cup of coffee, it would increase the frequency of usage and create a more positive attitude towards it. The European Central Bank is due to make a formal decision in the autumn regarding whether to issue its currency in digital format. Officials are currently working on technical details, such as which potential uses will be prioritised.
CBDC is a hot topic among eurozone governments, and there are many potential benefits to its introduction. However, there are also concerns about the impact it could have on the economy and users. The Eurogroup secretariat document raises important questions that need to be considered before legal tender status is granted. By addressing these issues, the ECB can pave the way for a successful and seamless introduction of CBDC into the European economy.