In an electronic transfer today, the sender’s bank transmits a message to a clearinghouse, asking it to shift money from its account to the recipient’s bank. (For certain large or urgent payments, this can go directly to the ECB.) The clearing function has to verify the details, then arrange to debit the sender’s bank’s account at the ECB and credit the recipient’s. Choreographing the moves can take as long as two days until the money settles in the recipient’s account.
The European Central Bank is experimenting with a digital euro | Hannelore Foerster/Getty Images
A digital euro could in theory streamline the transaction at lower cost. The ECB could keep its own ledger, automatically tracking the owner of each digital cent. Or it could set rules for other ledger-keepers in a decentralized system, perhaps similar to the distributed ledger for Bitcoin, which records each transaction using blockchain technology.
No phone reception? You could even turn on Bluetooth and send a token, a sort of electronic IOU, that would update the ledger when back online.
Why now?
Two reasons. First, electronic payments are on the rise amid concerns that physical cash could carry the coronavirus. Second, the tech industry is developing its own forms of currency.
Libra is foremost in officials’ minds. The association, set up by Facebook and a group of other companies, is designing a payment service using stablecoins, a type of digital asset that the EU is proposing to regulate.
The venture has spooked policymakers that Libra could be available to Facebook’s 2.7 billion users — undermining the euro while leaving citizens’ finances vulnerable, both to foreign powers as well as companies collecting data on their spending habits.