by From Norbert Häring Deposits at banks that are denominated in euro and can be used for all sorts of digital payments are already in existence. However, these deposits legally are only loans from the depositors to the banks which confer the right to be paid back with real money, i.e. physical euros issued by the central bank. A genuine digital euro would be digital money from the central bank. So far, only banks have access to digital central bank money. They have account balances at the central bank through which they effect payment transactions among themselves. The main innovation of digital central bank money (for everyone) would be that everyone would have direct or indirect access to such central bank money, and could use it for digital payment transactions. There are two ways to
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from Norbert Häring
Deposits at banks that are denominated in euro and can be used for all sorts of digital payments are already in existence. However, these deposits legally are only loans from the depositors to the banks which confer the right to be paid back with real money, i.e. physical euros issued by the central bank. A genuine digital euro would be digital money from the central bank.
So far, only banks have access to digital central bank money. They have account balances at the central bank through which they effect payment transactions among themselves. The main innovation of digital central bank money (for everyone) would be that everyone would have direct or indirect access to such central bank money, and could use it for digital payment transactions. There are two ways to achieve this:
- Everyone gets an account at the central bank for payment transactions. The balances on this account are exchangeable on a one-to-one basis with balances at commercial banks or cash. Like cash, these balances are not at risk of insolvency because the central bank is behind them.
- Alternatively, citizens would have special accounts at commercial banks for digital central bank money. Unlike normal bank deposits, the balance on these accounts is not a loan to the bank, but an escrow account. The account holder is the owner of the money on it, the bank only manages it as a service provider. If these accounts exist, the digital central bank money can be transfered from some commercial bank’s central bank account to a private CBDC-account at a commercial bank.
If the central bank would want to protect financial privacy of citizens, it could offer the possibility to load the digital euros onto anonymous electronic wallets or cards that can be used to make anonymous payments. That sounds good and it could be. But there is a big downside. It will not happen.