As the COVID-19 pandemics is rapidly influencing people to use digital currency to a higher extent, and governments nervously watch the rise in cryptocurrencies, such as bitcoin or the announced Facebook Libra cryptocurrency, central banks around the world are developing virtual versions of their currencies.
Among them is the European Central Bank, which presented a report on the digital euro last month and started a public discussion about the digital euro, which, according to initial assumptions, could be in circulation in a few years. Also, the Association of German Banks publicly requested that a digital euro be designed to offer the best available technology to meet the needs of the market.
What is digital Euro?
Digital Euro is an alternative means of payment and loans, instead of credit cards and cash, in the form of an application. Think of it as electronic money stored in an application like a wallet, on your phone. The European Central Bank will guarantee that one digital euro will always has the same value as a one-euro coin. You cannot lose this type of money because the European Central Bank would keep your reports, protecting you in case you lose your mobile phone or laptop.
The main difference between previous cryptocurrencies, such as bitcoin, whose value varies and whose users have been victims of recent cyber-attacks, and digital euro is that the European Central Bank will guarantee its safety.
Following the digital world
The European Central Bank will seriously reconsider the public interest and potential risks within the next six months, in order to decide in mid-2021 whether to launch the digital euro. However, considering that the Facebook Libra will launch this year, it is unlikely that the central banks will step aside.
Legal framework in the Republic of Serbia
Digital euro in the Republic of Serbia would be regulated through acts on foreign exchange operations, specifying the method of its use. This would prevent the outflow of capital that would result from investing in the new currency, as well as the potential disruption of the domestic money and capital market.
As previous cryptocurrencies have been affected by numerous cyber-attacks and money laundering occurrences, banks will have to upgrade their security systems and protocols.
The very definition of digital euro could not, however, be contained in the Draft Bill on Digital Assets because the current definition of digital assets does not include digital currency records that are legal tender and other financial assets regulated by other laws (such as electronic money or shares of companies listed on a stock exchange).
It is debatable whether the Law on Prevention of Money Laundering and Terrorism Financing could also be applied to the digital euro, because this Law classifies only the participants in the cryptocurrency business as taxpayers who are obliged to operate in accordance with the provisions of this Law.
It is certainly to be expected that the National Bank of Serbia will engage as much as possible, when the digital euro comes to life, because the European Central Bank itself will not autonomously control the new currency outside the EU.
Also, looking at the legal regulation of digital currencies, central banks around the world should be cautious about their introduction, especially considering the risk of impairing the ability of banks to lend to the economy. Public digital currencies may not be the only answer, according to Bank of England Governor Andrew Bailey, who points out that the role of private digital currencies should be considered in addition to the public version.
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