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European Central Bank - The Future of a Digital Euro

While the function of money has always remained the same, the nature of money continues to evolve with socioeconomic changes. Money was initially designed to overcome the inefficiencies and limitations of bartering; however, the unit of exchange became more essential in regulating specialized economies and trades. Coins created from special metals helped to temporarily fulfill this purpose until international trade came into the picture and coins were no longer a practical solution. The next evolution of money were the predecessors of paper money including credit notes and bills of exchange.  
In today’s economy money is no longer backed by any commodity and instead fiat money serves as the legal tender. The value of money is based on the trust that money will be accepted for all forms of economic exchange and that central banks will maintain their purchasing power through monetary policy.  
The nature of money and goods and services continue to advance with digitalisation and technological advances. In the Euro area last year, non-cash payments increased by 8.1% to 98 billion. The COVID-19 pandemic has only accelerated the shift towards contactless payments worldwide. In order to meet the demand for these digital payments, many new forms of payments have emerged, including advancements towards a digital euro. 
According to Christine Lagarde, the President of the European Central Bank, the Eurosystem is currently assessing potential implications by introducing a digital euro, including the liability of the central bank. A digital euro would act as a complement to cash and offer consumers unrestricted access to central bank money through a digital payment platform.  
A digital euro that has been designed adequately would create alliances within the payments industry and enable the private sector to create new businesses based on the capabilities of a digital euro, as well as help unify Europe’s digital economies.
Brian Tang, CFA
Brian Tang, CFA

Brian has a unique background working at investment management firms, family offices, hedge funds, and private banks. He has advised senior management on strategic and investment decisions, led department-wide change initiatives, and is always looking to improve efficiency, teamwork, and collaboration.

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