{"id":451056,"date":"2022-05-22T16:05:36","date_gmt":"2022-05-22T13:05:36","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/heres-why-europe-needs-a-digital-euro\/"},"modified":"2022-05-22T16:05:36","modified_gmt":"2022-05-22T13:05:36","slug":"heres-why-europe-needs-a-digital-euro","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/heres-why-europe-needs-a-digital-euro\/","title":{"rendered":"#Here\u2019s why Europe needs a digital euro"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_84 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a29f7a9496a4\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a29f7a9496a4\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/heres-why-europe-needs-a-digital-euro\/#%E2%80%9CHeres_why_Europe_needs_a_digital_euro%E2%80%9D\" >&#8220;Here\u2019s why Europe needs a digital euro&#8221;<\/a><ul class='ez-toc-list-level-2' ><li class='ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/heres-why-europe-needs-a-digital-euro\/#The_debt_benefit\" >The debt benefit<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/buradabiliyorum.com\/en\/heres-why-europe-needs-a-digital-euro\/#Interest_rates_and_other_questions\" >Interest rates and other questions<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h1><span class=\"ez-toc-section\" id=\"%E2%80%9CHeres_why_Europe_needs_a_digital_euro%E2%80%9D\"><\/span>&#8220;Here\u2019s why Europe needs a digital euro&#8221;<span class=\"ez-toc-section-end\"><\/span><\/h1>\n<div>\n                            The <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.ecb.europa.eu\/home\/search\/html\/central_bank_digital_currencies_cbdc.en.html\">European Central Bank<\/a> and its counterparts in the <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.bankofengland.co.uk\/research\/digital-currencies\">UK<\/a>, <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.federalreserve.gov\/central-bank-digital-currency.htm\">US<\/a>, <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.csis.org\/blogs\/new-perspectives-asia\/chinas-progress-towards-central-bank-digital-currency\">China<\/a>, and <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/indianexpress.com\/article\/business\/banking-and-finance\/cbdc-launch-in-calibrated-nuanced-manner-7858891\/#:%7E:text=The%20RBI%20plans%20to%20come,and%20make%20transactions%20real%20time.\">India<\/a> are exploring a new form of <span style=\"background-color: rgba(46, 146, 255, 0.2);\">state-backed<\/span> money built on similar online ledger <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/technology\/\" data-internallinksmanager029f6b8e52c=\"4\" title=\"Technology\" target=\"_blank\" rel=\"noopener\">technology<\/a> to cryptocurrencies such as bitcoin and ethereum. So-called central bank digital currencies (CBDCs) envision a future where we\u2019ll all have our own digital wallets and transfer money between them at the touch of a button, with no need for high-street banks to be involved because it all h<a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>ens <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.euromoney.com\/learning\/blockchain-explained\/what-is-blockchain#:%7E:text=Blockchain%20is%20a%20system%20of,computer%20systems%20on%20the%20blockchain.\">on a blockchain<\/a>.<\/p>\n<p>But CBDCs also present an opportunity that has gone unnoticed \u2013 to vastly reduce the exorbitant levels of public debt weighing down many countries. Let us explain.<\/p>\n<p>                <iframe loading=\"lazy\" src=\"https:\/\/fast.wistia.net\/embed\/iframe\/gpmn9xkc7o?videoFoam=true&amp;autoPlay=true\" title=\"\" allowtransparency=\"true\" frameborder=\"0\" scrolling=\"no\" class=\"wistia_embed\" name=\"wistia_embed\" allowfullscreen=\"\" msallowfullscreen=\"\" width=\"100%\" height=\"100%\"><\/iframe><\/p>\n<p>The idea behind CBDCs is that individuals and firms would be issued with digital wallets by their central bank with which to make payments, pay taxes and buy shares or other securities. Whereas with today\u2019s bank accounts, there is always the outside possibility that customers are unable to withdraw money because of a <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.investopedia.com\/terms\/b\/bankrun.asp\">bank run<\/a>, that can\u2019t happen with CBDCs because all deposits would be 100% backed by reserves.<\/p>\n<p>Today\u2019s retail banks are required to keep little or no deposits in reserve, <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.bankofengland.co.uk\/statistics\/details\/further-details-about-banking-sector-regulatory-capital-data\">though they<\/a> do have <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.bankingsupervision.europa.eu\/press\/pr\/date\/2022\/html\/ssm.pr220210%7E6455538b07.en.html\">to hold<\/a> a proportion of their capital (meaning easily sold assets) as protection in case their lending books run into trouble. For example, eurozone banks\u2019 minimum requirement is 15.1%, meaning if they have capital of \u20ac1 billion (\u00a3852 million), their lending book cannot exceed \u20ac6.6 billion (that\u2019s 6.6 times deposits).<\/p>\n<p>In an era of CBDCs, we assume that people will still have bank accounts \u2013 to have their money invested by a fund manager, for instance, or to make a return by having it loaned out to someone else on the first person\u2019s behalf. Our idea is that the 100% reserve protection in central bank wallets should extend to these retail bank accounts.<\/p>\n<p>That would mean that if a person put 1,000 digital euros into a retail bank account, the bank could not multiply that deposit by opening more accounts than they could pay upon request. The bank would have to make money from its other services instead.<\/p>\n<p>At present, the ECB holds about 25% of EU members\u2019 government debt. Imagine that after transitioning to a digital euro, it decided to increase this holding to 30% by buying new sovereign bonds issued by member states.<\/p>\n<p>To pay for this, it would create new digital euros \u2013 just like what happens today when <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/theconversation.com\/quantitative-easing-now-looks-permanent-and-has-turned-central-banks-into-pseudo-governments-130098\">quantitative easing (QE)<\/a> is used to prop up the economy. Crucially, for each unit of central bank money created in this way, the money circulating in the wider economy increases by a lot more: in the eurozone, <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.ecb.europa.eu\/pub\/pdf\/other\/ebbox201706_07_1.en.pdf?f307ee1c10fc673686926c27caa18c7a\">it roughly triples<\/a>. This is because QE drives up the value of bonds and other assets, and as a result, retail banks are more willing to lend to people and firms. This increase in the money supply is why QE can cause inflation.<\/p>\n<p>If there was a 100% reserve requirement on retail banks, however, you wouldn\u2019t get this multiplication effect. The money created by the ECB would be that amount and nothing more. Consequently, QE would be much less inflationary than today.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"The_debt_benefit\"><\/span>The debt benefit<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>So where does national debt fit in? The high national debt levels in many countries are predominantly the result of the global financial crisis of 2007-09, the eurozone crisis of the 2010s and the COVID pandemic. In the eurozone, <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/worldpopulationreview.com\/countries\/countries-by-national-debt\">countries with very high debt<\/a> as a proportion of GDP include Belgium (100%), France (99%), Spain (96%), Portugal (119%), Italy (133%) and Greece (174%).<\/p>\n<p>One way to deal with high debt is to create a lot of inflation to make the value of the debt smaller, but that also makes citizens poorer and is liable to eventually cause unrest. But by taking advantage of the shift to CBDCs to change the rules around retail bank reserves, governments can go a different route.<\/p>\n<p>The opportunity is during the transition phase, by reversing the process in which creating money to buy bonds adds three times as much money to the real economy. By selling bonds in exchange for today\u2019s euros, every one euro removed by the central bank leads to three disappearing from the economy.<\/p>\n<p>Indeed, this is how digital euros would be introduced into the economy. The ECB would gradually sell sovereign bonds to take the old euros out of circulation, while creating new digital euros to buy bonds back again. Because the 100% reserve requirement only applies to the new euros, selling bonds worth \u20ac5 million euros takes \u20ac15 million out of the economy but buying bonds for the same amount only adds \u20ac5 million to the economy.<\/p>\n<p>However, you wouldn\u2019t just buy the same amount of bonds as you sold. Because the multiplier doesn\u2019t apply to the bonds being bought, you can <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/trip-and-travel\/\" data-internallinksmanager029f6b8e52c=\"10\" title=\"Trip &amp; Travel\" target=\"_blank\" rel=\"noopener\">trip<\/a>le the amount of purchases and the total amount of money in the economy stays the same \u2013 in other words, there\u2019s no extra inflation.<\/p>\n<p>For example, the ECB could increase its holdings of sovereign debt of EU member states from 25% to 75%. Unlike the sovereign bonds in private hands, member states don\u2019t have to pay interest to the ECB on such bonds. So EU taxpayers would now only need to pay interest on 25% of their bonds rather than the 75% on which they are paying interest now.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Interest_rates_and_other_questions\"><\/span>Interest rates and other questions<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>An added reason for doing this is interest rates. While interest rates payable on bonds have been meager for years, they could hugely increase on future issuances due to inflationary pressures and central banks beginning to raise short-term interest rates in response. The chart below shows how the yields (meaning rates of interest) on the closely watched 10-year sovereign bonds for Spain, Greece, Italy, and Portugal have already increased between three and fivefold in the past few months.<\/p>\n<p><strong>Mediterranean 10-year bond yields<\/strong><\/p>\n<p>Following several years of immense shocks from the pandemic, the energy crisis, and war emergency, there\u2019s a risk that the markets start to think that Europe\u2019s most indebted countries can\u2019t cover their debts. This could lead to widespread bond selling and push interest rates up to unmanageable levels. In other words, our approach might even save the eurozone.<\/p>\n<p>The ECB could indeed achieve all this without introducing a digital euro, simply by imposing a tougher reserve requirement within the current system. But by moving to a CBDC, there is a strong argument that because it\u2019s safer than bank deposits, retail banks should have to guarantee that safety by following a 100% reserve rule.<\/p>\n<p>Note that we can only take this medicine once, however. As a result, EU states will still have to be disciplined about their budgets.<\/p>\n<p>Instead of completely ending fractional reserve banking in this way, there\u2019s also a halfway house where you make reserve requirements more stringent (say a 50% rule) and enjoy a reduced version of the benefits from our proposed system. Alternatively, after the CBDC transition ends, the reserve requirement could be progressively relaxed to stimulate the economy, subject to GDP growth, inflation, and so on.<\/p>\n<p>What if other central banks do not take the same approach? Certainly, some coordination would help to minimize disruption, but reserve requirements do differ between countries today without significant problems. Also, many countries would probably be tempted to take the same approach. For example, the Bank of England holds over one-third of British government debt, and UK public debt as a proportion of GDP currently <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.statista.com\/statistics\/282841\/debt-as-gdp-uk\/\">stands at 95%<\/a>.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img decoding=\"async\" loading=\"lazy\" style=\"border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;\" alt=\"The Conversation\" width=\"1\" height=\"1\" class=\"js-lazy\" src=\"https:\/\/counter.theconversation.com\/content\/183058\/count.gif?distributor=republish-lightbox-basic\"\/><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https:\/\/theconversation.com\/republishing-guidelines --><\/p>\n<p><noscript><img decoding=\"async\" loading=\"lazy\" style=\"border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;\" src=\"https:\/\/counter.theconversation.com\/content\/183058\/count.gif?distributor=republish-lightbox-basic\" alt=\"The Conversation\" width=\"1\" height=\"1\" class=\"\" srcset=\"\"\/><\/noscript><br \/>\n<em>This article by <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/theconversation.com\/profiles\/guido-cozzi-125864\">Guido Cozzi<\/a>, Professor of Macroeconomics, <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/theconversation.com\/institutions\/university-of-st-gallen-1417\">University of St.Gallen<\/a>, and <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/theconversation.com\/profiles\/leonardo-becchetti-1346200\">Leonardo Becchetti<\/a>, Professor of Political Economy, <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/theconversation.com\/institutions\/university-of-rome-tor-vergata-2806\">University of Rome Tor Vergata<\/a> is republished from <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/theconversation.com\">The Conversation<\/a> under a Creative Commons license. Read the <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/theconversation.com\/a-central-bank-digital-euro-could-save-the-eurozone-heres-how-183058\">original article<\/a>.<\/em>\n                        <\/div>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong>\n<\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more like this article, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/technology\/\" target=\"_blank\" rel=\"noopener\">Technology category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"https:\/\/thenextweb.com\/news\/why-europe-needs-digital-euro\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;Here\u2019s why Europe needs a digital euro&#8221; The European Central Bank and its counterparts in the UK, US, China, and India are exploring a new form of state-backed money built on similar online ledger technology to cryptocurrencies such as bitcoin and ethereum. So-called central bank digital currencies (CBDCs) envision a future where we\u2019ll all have&#8230;<\/p>\n","protected":false},"author":1,"featured_media":451057,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/img-cdn.tnwcdn.com\/image\/hardfork?filter_last=1&fit=1280,640&url=https:\/\/cdn0.tnwcdn.com\/wp-content\/blogs.dir\/1\/files\/2022\/05\/digital-euro.png&signature=3085de42c546a09a62bb13e8a4c2bc26","fifu_image_alt":"","footnotes":""},"categories":[18],"tags":[],"class_list":["post-451056","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-technology"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/451056","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=451056"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/451056\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/451057"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=451056"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=451056"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=451056"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}