Working Group for Blockchain DEBATE ON THE DIGITAL EURO

The discussion on digital euro place on Thursday, 26 November at the 3rd Open Forum of the Slovenian Digital Coalition 2020 entitled DIGITALIZATION OF SLOVENIA TODAY FOR TOMORROW.

The discussion on the digital euro was organized by an informal working group for blockchain technology, which operates within the Slovenian Digital Coalition. It consists of four organizations, namely Blockchain Alliance Europe, Blockchain Think Tank Slovenia, Bitcoin Association Slovenia and Slovenian Blockchain Association.

The discussion on the digital euro was encouraged by the European Central Bank Report on the digital euro, published on 2 October 2020. The Eurosystem’s public consultation on the digital euro runs until 12 January 2021, and both individuals and businesses can respond by completing a questionnaire available on the European Central Bank’s website (from now on the ECB).

Anja Blaj and Marina Markežič, representatives of Blockchain Think Tank Slovenia, opened the discussion by introducing the basic features of the digital euro and the factors for its establishment and regulation. The new currency should have similar functions as cash and competitive features compared to similar, especially private initiatives, factors for its establishment and regulation.

As Mrs Markežič pointed out, critical factors for its introduction are the support for the digitalization of the economy and the declining role of cash, tendency to compete with other institutions and private projects such as Libra, reduction of the ecological footprint and also cutting the costs of the existing system. The introduction of the digital euro is also intended to improve system security; however, the speaker pointed out the need for market neutrality of the new currency and the problem of end-user confidence.

Anja Blaj touched on the legal aspects, which will depend on what form of digital euro we will introduce. She emphasized that digital euro will not replace cash, or in other words, the EBC will pursue similar functionalities as cash has now. The latter includes a tendency to maintain the right to privacy, the ability to use the digital euro for offline payments, and the simplicity and comprehensibility of its use. The digital euro is expected to lead to greater unity within the euro area and speed up and reduce the cost of transactions.

Nevertheless, there are currently more unknowns than known facts regarding the digital euro, and there is no decision yet on the digital euro to be issued, as Simon Anko, Director of the Payment and Settlement System Department of the Bank of Slovenia pointed out. In the continuation of the discussion, he elaborated the activities the ECB was pursuing on this field and explained the relationship on the digital euro and electronic money and cryptocurrencies.

He emphasized that the goal of the digital euro was not a monopoly on the payments market, as the ECB encourages competitiveness and the creation of pan-European private solutions. In other words, the role of the Eurosystem central banks will be to issue this form of euro; whereas the design of the user experience, mobile applications and front-end infrastructure, and perhaps account management (in terms of customer relations) will most likely be in the domain of adequately supervised private legal entities.

One of the unknowns is also the technology that the digital euro is supposed to use. This area was discussed in more detail by Klemen Zajc, Head of Technological Development at Netis blockchain technologies, which is also a founding member of Blockchain Alliance Europe. As a good option, he pointed out the blockchain, which has already proven in its practice that it enables the transfer of value from one account to another. Even more, it also allows the possibility of adjustment for centralized services, including the digital euro.

Above all, Zajc pointed out that in a society that is being digitalized, we urgently need an electronic identity that would serve as an equivalent to the physical one. All that, while adhering to the principles of simplicity, security, universality and a high level of trust. Digital identity will be crucial, especially in digital currencies, where the listed features are even more critical than in other interactions.

A discussion and exchange of views followed the introductory presentations. Here, a representative of the Bank of Slovenia pointed out that the decision on further steps regarding the digital euro is expected in spring 2021, and that the Bank of Slovenia is planning a thematic event to which the Slovenian fintech industry will be invited. “The fact is that other currency areas, such as China, Sweden or the United States, are making progress in this area, so it is difficult to afford to fall behind,” he added. Also, Mr Anko confirmed that the selection of the appropriate technology would be made through pilots that will also test blockchain, but in any case, the final choice will not depend on current trends.

All participants in the discussion agreed that dialogue between the ECB and the fintech community is crucial in the introduction of the digital euro. Representatives of Slovenian organizations pointed out that Slovenia also has domestic knowledge and companies that know the field well and can thus become part of the solution through active cooperation, and at the same time called on institutions to be even more involved in future activities.