Episode 17: The Future of Payments in the Euro Area

Bitcoin rose from the ashes of the global financial crisis of 2007-08 as the first cryptocurrency to attract global attention. With the rise of peer-to-peer electronic cash systems that do not rely on intermediaries, there are more than 7,500 cryptocurrencies in circulation now, according to Statista. Some first businesses accept major cryptocurrencies as payment today. All these developments lead to the questions such as, whether cryptocurrencies are actually money, and whether they are good investment or store of value tools with their high volatility issue. The cost of low stability in cryptocurrency values increased the importance of (fiat-backed) stablecoins, which are cryptocurrencies backed by real-world assets such as commodities, fiat currency (issued by the government), gold, or other cryptocurrencies. Investors can safeguard themselves against the volatility in cryptocurrencies by investing in stablecoins, which may also serve as a store of value. Increased competition from these novel forms of primarily private sector-issued money such as cryptocurrencies and stablecoins with the declining use of cash as a means of payment lead most of the central banks around the world to consider issuing their own central bank digital currency (CBDC). The European Central Bank (ECB) is also looking into the possibility of introducing a CBDC for the Euro Area, the digital euro. Therefore, a digital euro might become reality in a few years.