FERI Cognitive Finance Institute - A Digital Euro Could Be Here as Early as 2021

The private Stablecoin project "Diem" - formerly "Libra" - is well ahead in the race for the introduction of a "digital euro". A corresponding crypto currency, whose value is also linked to the euro, could be available as early as the beginning of 2021. By contrast, the European Central Bank is not expected to introduce its own digital currency until the middle to end of this decade at the earliest. This is the conclusion reached by the Frankfurt School Blockchain Center in a recent analysis based on a survey of more than 50 high-ranking experts from various sectors and industries, including central bankers and experts from industry. The FERI Cognitive Finance Institute has summarized the results of this panel in a Cognitive Briefing.

Potential for New Business Models

According to the report, the digitization of currencies and payment infrastructures is accelerating worldwide. There are also efforts to develop a digitised version for the euro. Firstly, the European Central Bank is discussing the introduction of a so-called Central Bank Digital Currency (CBDC). On the other hand, the Diem (formerly Libra) Association, founded by private companies, including Facebook as its best-known member, is planning to create a Diem-Coin convertible into euros as part of a global payment infrastructure.

"A digital programmable euro has the potential to stimulate innovation and generate new business models. Benefits can be expected in particular from automation gains as well as greater efficiency in cross-border payment transactions and faster processing of payments," says Prof. Dr. Philipp Sandner, Head of the Frankfurt School Blockchain Center at the Frankfurt School of Finance & Management.

The experts surveyed largely agree that the Diem Association is very likely to introduce a digital currency much earlier than the European Central Bank (ECB). Despite a certain amount of scepticism about the Diem Association's potentially great market power, the analysis shows that it is to be welcomed that a private-sector initiative is making rapid progress here, thereby increasing the pressure on the central banks.

Bitcoin Gets Competition

According to the analysis, the question of how the relationship between Diem and official CBDCs and already existing crypto currencies such as Bitcoin will develop in the future is also exciting. "The payment function of Bitcoin would undoubtedly be substituted by the new digital currencies. However, crypto currencies have always been an object of speculation and an anonymizing payment vehicle. It remains to be seen whether this will be enough to keep the old crypto currencies alive. What is clear, however, is that the creation of new digital money by central banks should not become an additional supporting factor for the old crypto currencies," says Dr. Torsten von Bartenwerffer of the FERI Cognitive Finance Institute.

The Cognitive Briefing of the FERI Cognitive Finance Institute on the topic "Digital Euro: The race between the European Central Bank and the Diem (formerly Libra) Association" is available (in German) at: https://www.feri-institut.de/media-center/publikationen/