The international monetary system is facing a major change: private cryptocurrencies à la Bitcoin could be followed in the foreseeable future by digital money issued by central banks. A first Chinese attempt at the Winter Olympics is likely to be followed by other countries, at least that’s what Ralf Wintergerst, head of the Munich banknote manufacturer Giesecke + Devrient, expects.
China is pushing ahead
“The People’s Bank of China has announced that it will introduce a so-called” digital currency electronic payment “for the 2022 Winter Olympics,” said Wintergerst. “That is new.” He sees the Chinese announcement as a first live attempt. “China and Sweden are the two countries that are the furthest advanced, whereby China has set an example with the announced launch for the Winter Games. We as Europe are just at the beginning of the development.”
Technically, a digital euro would be similar to Bitcoin. But unlike the famous cryptocurrency, it would be under the supervision of a central bank. Such a euro would exist as a digital unit and be available for online business. As with Bitcoin, you would need your own wallet in which the digital money is stored. Modern smartphone banks have already docked these to the current accounts as standard.
G + D has more than 100 central banks as customers around the world. In addition to banknote printing, the company has now also specialized in digital security such as encryption.
Europe is waking up
“There is also an awakening in the EU at the moment,” said Wintergerst. “The ECB is dealing with the issue, and the G20 finance ministers are also currently working on a policy paper that should describe the basic rules for digital central bank currencies.
Facebook’s plans to introduce the crypto currency Libra had sparked a debate over whether central banks like the ECB should provide an answer with their own digital currency. The German banks want to campaign for the introduction of a digital currency in the euro area. “We need a digital euro in Europe,” said the President of the Association of German Banks, Hans-Walter Peters, in autumn 2019.
“A digital euro would be an important contribution to a stronger Europe that addresses the challenges of the digital revolution with determination,” said Peters. If Europe does not move itself on the subject, it will be driven or “pushed out of the way” by others.
First of all, understand the advantages and disadvantages
Bundesbank boss Jens Weidmann, however, warned in January in the Handelsblatt against the rash introduction of digital central bank money. “I don’t believe in always calling out to the state straight away. In a market economy, it is first up to the company to develop a suitable offer for customer requests.” Weidmann advocated weighing up the advantages and disadvantages. “First of all, it’s about understanding the positive and negative sides of digital central bank money. Then it can be decided whether it is needed and the risks can be managed.”
G + D boss Wintergerst sees three major challenges: the basic security of a digital currency, the protection of privacy and the risk to the banking system.
In contrast to handing over a banknote when paying at the till, every digital transaction leaves its mark – concerns and criticism from data protection officials would be inevitable when digital money was introduced. The head of the company founded in 1852 argues that privacy and data protection can also be guaranteed with a digital currency.
“Technically you can do it, it’s a question of wanting. A digital currency can be designed in such a way that all transactions up to any threshold value – for example 1000 euros – are completely anonymous and not traceable, and transactions are only stored by name above this threshold would have to be. “
The digital money project at G + D is called Filia, Latin for daughter. That includes both the production of digital money and the complete circulation of money, said Wintergerst. The company is therefore discussing with various central banks around the world how such a technology could be implemented.
However, according to Wintergerst, not only the protection of privacy must be carefully considered, but also the effects on the financial system. “Cash is issued to the commercial banks and only then does it come to us consumers,” said Wintergerst. “With a digital currency, I can theoretically use the abbreviation from the central bank to go straight to the consumer and defeat the banking system.” The big question: “But if you want that, wouldn’t you create a singular break?”
Potential benefits for billions
On the other hand, digital currencies could offer advantages for billions of people, argues Wintergerst. “The biggest criticism of the current financial system is that many people in the world do not have access to it. It is estimated that over three billion people have no bank accounts.” This applies to many African countries, but also parts of Latin and South America. “However, the bank account is the key to loans and other services that banks provide.”
The second point of criticism is the susceptibility to fraud. “Card number theft has been a cybercrime problem for years.” A third point: the relatively slow speed of payment transactions, especially internationally. As a fourth point, Wintergerst mentions the cost of payment. “A digital central bank currency would go into exactly these four gaps.”