Three threats to digital currencies 

Nation­al cur­ren­cies are not spared from the wrath of the dig­i­tal trans­for­ma­tion. After Lithua­nia and then Chi­na, which recent­ly intro­duced the e‑yuan, a dig­i­tal ver­sion of its cur­ren­cy, Nige­ria has launched its own called the eNaira. Around the world, many cen­tral banks, includ­ing the Euro­pean Cen­tral Bank (ECB), are look­ing at sim­i­lar projects and test­ing what is now known as a CBDM, a Cen­tral Bank Dig­i­tal Currency.

Such cur­ren­cies are seen as a dig­i­tal ver­sion of the country’s cur­ren­cy. Thus, the dig­i­tal euro would be a claim on the ECB iden­ti­cal to the cash­less or fidu­cia­ry euro. In prac­ti­cal terms, there would be no risk of default for the hold­er, unlike cryp­to-cur­ren­cies such as Bit­coin or Ethereum, which can expe­ri­ence high volatil­i­ty and are not backed by an exist­ing cur­ren­cy. But there are many para­me­ters that com­pli­cate the issue of mov­ing to a CBDM at the same time as threats to the mon­e­tary sys­tem are grow­ing and wor­ry­ing cen­tral bankers.

The main threat is com­pe­ti­tion from pri­vate play­ers, which is inten­si­fy­ing with the emer­gence of cryp­to-cur­ren­cies launched by the dig­i­tal giants, whether Amer­i­can or Chi­nese. After ambi­tions to launch its vir­tu­al cur­ren­cy called Libra and then Diem, Face­book final­ly gave up, but oth­er large pri­vate com­pa­nies con­tin­ue to study the issue of cryp­to-cur­ren­cies. The risk is that, by tak­ing over the means of pay­ment, these com­pa­nies will acquire full vis­i­bil­i­ty of the pay­ments made and there­fore of per­son­al data.

In addi­tion to the threat to data con­fi­den­tial­i­ty, there is also a risk of dis­rupt­ing nation­al cur­ren­cies. Espe­cial­ly at a time when cash is grad­u­al­ly dis­ap­pear­ing, and pay­ments are increas­ing­ly vir­tu­al. Anoth­er impor­tant issue is the glob­al com­pe­ti­tion between cen­tral banks. The main cen­tral banks are com­pet­ing with each oth­er to impose their cur­ren­cies in inter­na­tion­al trade, par­tic­u­lar­ly against the dollar.

Although still in its infan­cy, web3, a new gen­er­a­tion of the Inter­net which large­ly exploits blockchain tech­nol­o­gy, con­sti­tutes an addi­tion­al threat. Indeed, new tech­nolo­gies such as cryp­to-cur­ren­cies or blockchain already allow the cre­ation and pos­ses­sion of “native” means of pay­ment: dig­i­tal assets, bit­coins, NFTs, etc. With web3 and the meta­verse, all this is becom­ing very real! In addi­tion, there are now sta­ble­coins, which are sta­ble cryp­to-cur­ren­cies. These accel­er­ate the vir­tu­al­i­sa­tion of mon­ey, as they reduce the risks asso­ci­at­ed with the volatil­i­ty of cryp­to-cur­ren­cies. When it exists, the dig­i­tal euro will move to web3 where it will be backed by the cen­tral bank and offers rel­a­tive stability.

In addi­tion to these mul­ti­ple threats and ques­tions, there is the ques­tion of whether a dig­i­tal cur­ren­cy issued by a cen­tral bank could meet the demand and expec­ta­tions of users. Indi­vid­u­als cur­rent­ly use vir­tu­al means of pay­ment (bank cards, trans­fers, pay­ments by tele­phone or inter­bank sys­tems, etc.) and many of them do not nec­es­sar­i­ly see what ben­e­fits a dig­i­tal cur­ren­cy could add.

How­ev­er, there are a num­ber of advan­tages to CBD­Cs. While not answer­ing the ques­tion of user adop­tion, the cre­ation of a dig­i­tal euro would encour­age a rel­a­tive stan­dard­i­s­a­tion of means of pay­ment at an inter­na­tion­al lev­el. If the dig­i­tal euro were to become a stan­dard, it would be inter­op­er­a­ble, allow­ing for faster – almost instan­ta­neous – and cheap­er pay­ments and exchanges. In oth­er words, inter­na­tion­al pay­ment sys­tems would be more effi­cient and reliable.

Opin­ions remain divid­ed on the con­tri­bu­tion of dig­i­tal tech­nol­o­gy to the world of mon­ey. Some believe that what is hap­pen­ing now is a mar­gin­al phe­nom­e­non and that it will remain that way; oth­ers believe that the devel­op­ments under­way are the back­bone of future finan­cial sys­tems; and more oth­ers hope that dig­i­tal­i­sa­tion will lead to the improve­ment of cur­rent pay­ment sys­tems and to the mod­erni­sa­tion of inter-bank and retail pay­ments. The only cer­tain­ty at this stage is that, what­ev­er option is cho­sen, the tech­nol­o­gy will have to com­ply with the law.

Interview by Sophy Caulier