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ECONOMY| 01.02.2021

Awaiting the digital euro

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Digitalization has permeated every aspect of modern life. Economic activity is no exception, becoming ever more dependent on the “digital” concept, explained Alberto Matellán, Chief Economist at MAPFRE Inversión. “Naturally, this involves a change in the way we conceive of money.” The European Central Bank is gearing up for this change, having recently launched a public consultation to garner citizens’ opinions on a payment method that is increasingly said to be simpler, universal, safe and trustworthy.

Inaction is not an option

“We have to be ready to launch the digital euro, should the need arise,” stressed Christine Lagarde, President of the European Central Bank (ECB), who recently projected that the digital euro would be a reality within five years. Although the final decision has not yet been made, all the evidence suggests it could be announced in mid-2021. “Inaction is not an option” was the expression used by Fabio Panetta, Member of the ECB’s Executive Board, in anticipation of what is to come.

The digital currency aims to make citizens’ lives easier and is intended simply as a “complement to physical money.” “A digital currency created by central banks to replace traditional money could be more efficient in some ways. However, the greater level of control this would bring would be offset by a huge loss of freedom. As a result, it is very unlikely that it would be accepted by the majority of citizens,” explained Alberto Matellán, Chief Economist at MAPFRE Inversión.

Moreover, should its use be expanded, “it would drive the use of other cryptocurrencies or alternative forms of money in order to evade that control,” he warned. But that does not halt the general trend, which is toward digital euros and dollars in circulation alongside physical money.

Fast, easy and secure

The speed of transactions, ease of use and accessibility across the pan-European territory are but a few of the most tangible advantages of the long-anticipated currency, which was recently the subject of a public consultation by the ECB. The protection of privacy and high security standards were the two benefits that were most appreciated by the European citizens who took part in the survey.

The process recently came to a close after more than 8,000 responses were received online, and it consisted of a two-part questionnaire: one addressed to the general public and the other intended for those working in the financial, academic and technology sectors — thus combining users’ perspectives with the views of experts.

Natural innovation post-COVID

The introduction of the digital euro would foster the digitalization of the European economy and would actively drive innovation in the area of retail payments. And now is a particularly timely moment.

COVID-19 has changed online shopping behaviors “forever” according to a survey of some 3,700 consumers across nine emerging and developed economies. The analysis, titled COVID-19 and E-commerce, explores in depth how the pandemic has changed the way that consumers use e-commerce and digital solutions across such disparate countries as Brazil, China, Germany, Italy, the Republic of Korea, the Russian Federation, South Africa, Switzerland and Turkey.

Over half of the respondents admitted that, following the outbreak of the pandemic, they now make more purchases online and also do so more frequently; as well as now having more trust in online shopping. In Spain, according to the country’s Centro de Investigaciones Sociológicas (CIS — Sociological Research Center), 23 percent of Spaniards made more purchases online in 2020. What’s more, according to a recent study by the consulting firm Kantar, the number of online purchases in Spain doubled in 2020 compared to the previous year.

¿Digital currency vs. cryptocurrency?

From the perspective of investors, particularly in the retail sector, cryptocurrencies are intended as a substitute to money, with certain defining characteristics that prevent mass uptake. For MAPFRE Inversión, cryptocurrencies should not be considered as a recommendable asset, or even as an asset per se. However, this has seemingly not prevented their consolidation as an unstoppable trend that will likely redefine our concept of money.

If there are two defining characteristics of cryptocurrencies, these would be their limited quantity and the greater respect for the freedom and privacy of transactions, which are particularly attractive qualities in certain contexts. Conversely, the European currency represents the other side of the same coin and will constitute, for that matter, a recommendable investment and one that will benefit from oversight by the guardians of the euro.

The use of the digital euro will offer the same level of trustworthiness for citizens as physical money, given that both will be backed by the central bank — unlike cryptocurrencies.