Recently, the phenomenon of cryptocurrencies as a means of payment has been attracting a lot of attention. More and more companies are adopting electronic currencies as a means of payment, many multinationals, like Starbucks or PayPal, are taking up the challenge of inculcating blockchain in their payment system. The ECB has also hinted that it may release a euro-crypto in the near future. A question then arises: what are the benefits that cryptocurrencies could bring to citizens if they were implemented as a payment system?
To answer this question, we need to look at the characteristics of cryptocurrencies. Firstly, these currencies, such as Bitcoin, do not exist physically but only virtually. Bitcoins are generated by the so-called blockchain process, which involves a network of computers with very high computing power, rather than by a monetary authority. This means that no physical authority guarantees their payment. One of the key tasks of the ECB is to ensure that when you hold a euro it can be used as a method of payment throughout the Eurozone. A second important aspect that differentiates an electronic currency from a classic banknote is it’s volatility. With the objective of stable inflation in the long run, the ECB ensures that purchasing power remains stable, whereas Bitcoin being quite volatile is far from stable. With the use of cryptocurrency such as Ethereum, it is also impossible to trace the transactions carried out because the blockchain system gives them an identification code that changes with the owner, unlike the serial number of the euro, which can be used to trace the various payments made. Given their characteristics, electronic currencies can therefore be considered an excellent asset for speculation.
Even if some development about the volatility has been made, for instance Stablecoin, its still difficult for policy makers to control this type of payment method and, perhaps, it is precisely this aspect that encourages platforms such as PayPal and Overstock.com to implement them in their systems.
With the rise of digitalisation, the transactional system has evolved towards a currency that is no longer tangible but digital, so much so that, in about fifty years, we have gone from banknotes to credit cards, taking a leap forward and having everything at our fingertips. The evolutionary leap of money towards dematerialization has led the ECB to change course, partly due to COVID 19 and the renewed preference of electronic payments over cash because of the ease with which cash transmits the virus, and to start laying a first brick towards a digital euro. The latter would provide all EU citizens with a financially inclusive method of payment, widening the range in which people can choose to make a transaction.
The project, launched in July 2021, is still in the development phase and it is expected that the first surveys and tests will be carried out to test the most congenial methods of use for its users, as Christine Lagarde said “our work aims to ensure that in the digital age citizens and firm continue to have access to the safest form of money, central bank money”.