Tuesday , September 21 2021

The war with digital currencies has been announced

These are currency wars, version 2.0. Between bitcoin and Libra, renamed Diem, central banks want to maintain their monopoly. The ECB is working on a digital euro. Switzerland is making progress.

Imagine for a second you were able to have a euro account directly with the European Central Bank (ECB), perhaps even at an interest rate? This digital euro or digital euro would be the ultimate form of currency, the safest because it is deposited at the source, with the institution that prints the banknotes and manages monetary policy. What about commercial banks where we all still have deposits? Are the banks disappearing from the landscape?

We are not there yet. But the ECB is really working on creating a digital euro. And she is not the only one. From Sweden to China through Switzerland, we think about it. The Swiss National Bank announced only on Thursday that it had completed a currency feasibility study in co-operation with the Bank for International Settlements (BIS), the “bank of central banks”. However, the project called Helvetia does not apply to the individual, at least initially.

The pandemic has further increased the attractiveness of digital payments, including contactless payments.

Undoubtedly, the first central bank to implement such a digital currency will enjoy a competitive advantage. Because face to face, central banks are also competing with each other, their currencies are in competition. The institutions that issue them have a common desire: they want to maintain a monetary monopoly at all costs. This is why they are blurring the view of the renewed interest in bitcoin. The latter, which presents itself as a bulwark against the printing press too often used by central banks, is again flirting with $ 20,000. Above all, he managed to attract large investors. Even renowned managers like Stanley Druckenmiller, the former right-hand man of Soros and Paul Tudor ionson have succumbed to the cryptocurrencies. But bitcoin, which retains a very speculative taste, is probably not the most dangerous trump card in publishing institutions. The most criticized is Libra, the currency published in 2019 by Facebook.. Because here we are talking about potentially almost 3 billion potential users. Critics were such regulators (fear of financial system stability, money laundering risks, etc.) that the early partners, Visa, PayPal and MasterCard, quickly left the ship.

This week, the Libra association, which is the pilot of the project, announced a name change to Diem. The project, which brings together companies such as Spotify, Uber, Lyft, Iliad and Coinbase, has primarily revised its ambitions downwards, taking into account regulators’ remarks. The association counts soon launches “stabiloin”, a currency linked to another asset, in this case the dollar.

The pressure on central banks will not diminish. Pandemic has further increased the attractiveness of digital payments, including contactless payments, even if the figures show that citizens still value their money. This is why on the side of the European Central Bank, Christine Lagarde and Fabio Panetta claim that along with cash there will be a digital euro.

The ECB has not yet officially made the decision to launch such a digital euro. In the report, he also highlighted the risks to financial stability. Because to imagine a new banking crisis like in 2008. Depositors will soon have to abandon their traditional bank accounts to switch to digital euros (more secure) at the ECB. A kind of big digital “banking administration” capable of creating real chaos.

The questions remain numerous. Can the ECB go over the banks and offer accounts to individuals? Should these deposits in the ECB be limited in amount? Should they have an interest rate? The answers to these questions will shape the financial landscape for decades to come.

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