BRUSSELS: The EU on Wednesday took its first significant step towards launching a digital version of the euro, a controversial project that has been questioned by politicians and banks.

From China to the United States, Jamaica to Japan, more than 100 central banks worldwide are exploring or preparing to put in place digital currencies as electronic payments grow, changing the way people spend their money.

The move to create a digital version of the single currency began in 2020 when European Central Bank (ECB) President Christine Lagarde suggested the idea and her Frankfurt-based body launched a public consultation.

The European Commission, the EU’s executive arm, published a proposal on Wednesday that will be the legal foundation on which the ECB could launch a digital euro.

The currency would be available to individuals living in the euro area and for visitors. It would offer an additional payment option for citizens to use online and offline with their digital wallets, thus ensuring as much anonymity as coins and banknotes.

The final law must be backed by the EU’s 27 member states and the European Parliament.

Digital euro enthusiasts say it will complement cash and ensure the ECB does not leave a gap later filled by private — usually non-EU — players and other central banks.

“Given that the euro is already the world’s second most-traded currency, it is not an area where can afford to stay behind the curve. We need to move ahead with a digital currency,” commission vice president Valdis Dombrovskis told reporters.

Critics question the need for a digital euro and banks warn of major risks, while the ECB’s own study found the public was concerned over payment privacy.

The ECB and the commission “have yet to make a compelling case of why we need the digital euro and what added value it will deliver,” German MEP Markus Ferber said.

The commission’s proposal argued that the digital euro’s “long-term benefits... outweigh its costs” and warned “the costs of no action can potentially be very large”.

Lagarde said in March that the digital currency was important for resilience and to “safeguard European payment autonomy”.

Many means of payments are “not necessarily European”, she noted, adding it was “very unhealthy to rely on one single source of payment”. US giants Visa and Mastercard currently dominate the global card payment market.

Published in Dawn, June 29th, 2023