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The EU will develop a prototype of the digital euro in 2023

The EU will develop a prototype of the digital euro in 2023

The European Central Bank is already testing different types of technology for launching the digital euro. A prototype as well as a legislative bill to implement it are scheduled to be finalized in 2023. 

Why is it so important?

  • CBDC launch is a threat to euro-pegged stablecoins.
  • CBDC development may result in banning the use of cryptocurrencies, as has already happened in China. 

According to Politico, EU finance chief Mairead McGuinness officially announced plans on digital currency. "Our goal is to table legislation in early 2023. A targeted legislative consultation in the coming weeks". 

If the legislative bill and prototype are approved, the new digital currency could be launched in 2025. 

To recall, the European Union and the U.S. have been actively opposing the development of cryptocurrencies in recent years. By joint efforts, they prevented the realization of Libra cryptocurrency, and then the Diem stablecoin by Facebook founder Mark Zuckerberg. However, in 2021, following the growth of the DeFi sphere and the increase in the crypto industry's capitalization, governments had to revise their opinion. For example, the U.S. is actively developing the digital dollar. The Swiss bank has already succeeded in testing its own version of CBDC. Meanwhile, China has announced the creation of pilot zones where the digital currency DCEP will be used as money.

Central bank digital currencies (CBDC)

CBDCs are a product of central banks, using which they try to compete with all cryptocurrencies. They almost completely copy the characteristics of cryptocurrencies, except for a few peculiarities. First, instead of decentralization, they offer centralization, i. e., only one organization can issue coins. The second thing is that there is no possibility to mine or perform DeFi in order to passively obtain new digital coins. Thirdly, CBDC is controlled by the state, and as a consequence, it can control transfers by imposing sanctions against countries, organizations or certain people. Moreover, there is no anonymity. 

Among major countries, the People's Bank of China is the most progressive in issuing such a currency. The secret development started back in 2014, but the world only found out about it in 2019. Today, testing of the central bank's digital currency, called DCEP, is in its final stages. 

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