The international monetary system is facing a major change: private cryptocurrencies à la bitcoin could be followed by digital money issued by central banks in the foreseeable future.
A first chinese attempt at the winter olympics will probably be followed by other countries, at least that’s what ralf wintergerst, the head of munich-based banknote manufacturer giesecke +devrient expects.
"The people?S bank of china has announced plans to introduce a so-called digital currency electronic payment for the 2022 winter olympics," said wintergerst. "This is new."He considers the chinese announcement to be a first live attempt. "China and sweden are the two countries that have made the most progress, with china setting an example with its announced launch for the winter games. We as europe are just at the beginning of the development."
Technically, a digital euro would resemble bitcoin . But unlike the famous cryptocurrency, it is under the supervision of a central bank. Digital currencies work on the basis of a so-called blockchain – i.E. A chain of data blocks that expands with every transaction. Such a euro would exist as a digital unit and be available for online transactions. As with bitcoin, you need your own wallet to store the digital money. Modern smartphone banks already have them docked to checking accounts by default.
G+D has more than 100 central banks as customers internationally. In addition to banknote printing, the company now also specializes in digital security technologies such as encryption.
"There is also a debate going on in the eu at the moment," wintergerst said. "The ECB is looking at the issue, and the G20 finance ministers are also working on a policy paper that will set out basic rules for digital central bank safeguards."
Facebook’s plans to launch the cryptocurrency libra had sparked a debate about whether central banks like the ECB should respond with their own digital currency. German banks want to push for the introduction of a digital currency in the euro area. "We need a digital euro in europe," hans-walter peters, president of the association of german banks, said in the fall of 2019.
"A digital euro would be an important contribution to a stronger europe that tackles the challenges of the digital revolution with determination," peters said. If europe does not move on this issue itself, it will be driven by others or "pushed out of the way".
However, the head of the bundesbank, jens weidmann, warned in january in the "handelsblatt" newspaper against the ill-considered introduction of digital central bank money. "I don’t believe in calling for the state all the time. In a market economy, it is first up to the companies to develop an appropriate offer for customer wishes."Weidmann argued for weighing up the pros and cons of digital central banking. "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 whether the risks can be managed."
G+D head wintergerst sees three main challenges: the basic security of a digital wallet, the protection of privacy and the risk to the banking system.
Unlike handing over a banknote when paying at the checkout, every digital transaction leaves traces – concerns and criticism from data protectionists were programmed, so to speak, when digital money was introduced. Even with a digital currency, privacy and data protection love to be guaranteed, argues the head of the company, which was founded in 1852.
"Technically, it can be done, it’s a question of will. A digital currency can be designed in such a way that all transactions up to an arbitrary threshold – for example, 1000 euros – are completely anonymous and untraceable, and transactions above this threshold only have to be deposited by name."
The digital money project at G+D is called filia, latin for daughter. This includes both the production of digital money and the complete circulation of money, said wintergerst. The company is accordingly discussing with various central banks around the world how such a solution could be implemented.
But wintergerst believes that not only the protection of private spheres must be carefully considered, but also the impact on the financial system. "Cash is issued to the commercial banks, and only then does it come to us consumers," wintergerst said. "With a digital currency, i can theoretically take the shortcut from the central bank directly to the consumer and undermine the banking system." The rough question: "but do you want that, did you not create a singular breaking point with it?"
On the other hand, digital perceptions could provide benefits for billions of people, wintergerst argues. "The main criticism of the current financial system is that many people in the world do not have access to it. According to estimates, over three billion people do not have a bank account."This applies to many african countries, but also to parts of latin and sudamerica. "The bank account, however, is the key to credit and other services that banks provide."
The second point of criticism is the susceptibility to fraud. "The theft of card numbers has been a cybercrime problem for years." A third point: the relatively slow speed of payments, especially internationally. Wintergerst cites the costs of the payment system as a fourth point. "These are exactly the four gaps into which a digital central bank currency has been put."