Jonas Gross teamed up with leaders in digital payments to start the Digital Euro Association. As a new member, we spoke about the goals of the DEA.
Changes to payments have been brewing for a while now. But, while the impact of a major digital currency, like the planned digital Yuan, is expected to be substantial, no one is quite sure exactly how this will impact global economics.
Increasingly, there are calls from other major economies to keep pace with both other countries, of which China appears to be at the forefront, and private stablecoins - or risk being pushed out of prominence. The Digital Euro Association (DEA) is a group that was started to drive innovation, collaboration, and education around the development of a digital payment system for the Euro Area. We spoke with Jonas Gross, a leader in Central Bank Digital Currencies, stablecoins, and cryptocurrencies research and Co-Founder of the DEA, about why it's so important for the ECB to release a programmable digital currency and how this could look.
Jonas Gross is a Project Manager at the Frankfurt School Blockchain Center (FSBC), a think tank at the Frankfurt School of Finance & Management. At the Frankfurt School Blockchain Center, he contributes to analysis of the impact of blockchain technology and cryptocurrencies on companies' business models and their macroeconomic implications. After finishing his master's degree in Economics, Mr. Gross started his Ph.D. at the University of Bayreuth (Germany) about digital currencies.
Based on his extensive and on-going research in his PhD and efforts in community organising around blockchain innovation and payments, we wanted to learn more about the recent DEA initiative, how a digital Euro could unfold, and when Gross expects these changes could take effect.
The mission of the Digital Euro Association (DEA) is to contribute to the public and political discourse on the digital euro. By doing so, the DEA follows a three pillar strategy 1) providing an all-in-one online platform for education on topics around digital money, such as the digital euro, stablecoins, and crypto assets, 2) building a multidisciplinary community around the digital Euro, and 3) stimulating collaborations by acting as an accelerator for the introduction of the digital euro.
We intend to improve education for the general public around the digital euro and foster collaborations within the industry and the financial sector.
Our founding team consists of seven people from academia and the financial industry, including Prof. Philipp Sandner (Frankfurt School Blockchain Center) and Alexander Bechtel (Deutsche Bank and University of St. Gallen). In the last weeks, we have also onboarded first research fellows as part of our strategy to introduce a community around the digital euro. As research fellows, we select strong voices in the field of digital money. We are delighted to have experts such as Miguel Fernández Ordóñez (Former Governor of the Central Bank of Spain), Dr. Peter Dittus (Former Secretary General of the Bank for International Settlements), Chris Ostrowski (Commercial Director of OMFIF Digital Monetary Institute), and Jake Stott (Founding Board Member of dGen) as research fellows on board.
The DEA is currently onboarding new research fellows to increase the size of the DEA community. Afterwards, we will start introducing specific education programmes, such as a programme to learn everything you need to know about the “digital euro” in just a few days. Moreover, we will set up online events about digital money.
There are various reasons why a digital euro is necessary. First, the use of cash as a means of payment continuous to decline, accelerated by changed payment behaviour due to Covid-19. Therefore, from a central bank perspective, it is necessary to introduce a form of digital cash.
Second, a digital euro is necessary to ensure the independence and resilience of our payment system.
Stablecoin projects like Libra or foreign CBDCs like the Chinese DC/EP could potentially also be used in the euro area. This would increase dependence on foreign payment systems. A digital euro would introduce an independent and euro area-native digital payment scheme. Thirdly, a blockchain-based means of payment is increasingly demanded by the European industry because it increases efficiency in business processes due to integrating delivery and payment of a good or asset on one platform (delivery vs. payment) and enables programmable payments.
Programmability could change European business models substantially. Business models relying on DLT, such as applications in the field of digital assets, mobility, or supply chain, currently lag a DLT-based euro-denominated means of payment.
Hence, to trigger a DLT-based payment denominated in euros, a “bridge” has to be built between the DLT and the conventional banking system.
This introduces frictions and limits. For instance, it is not possible to do micropayments in such a setting. Against this background, a DLT-based means of payment would increase automation and would enable new business models, for example, related to micropayments, which are essential for DLT use cases related to the machine economy, mobility, etc.
Today, no central bank digital currency has been introduced anywhere in the world. Therefore, it is difficult to assess its impact for the financial sector and the economy. This is one reason why central banks tend to be cautious about introducing a CBDC. Main fears are related to negative effects for the financial sector, such as a structural disintermediation and a higher likelihood of digital bank runs. Other risks include data privacy risks as in contrast to anonymous transactions in cash, in a digital payment system transaction data can be accessed by the system-managing party.
It is not clear yet how a digital euro would look. Even though the ECB has sketched out first design dimensions of the a digital euro in a recent report, no decision has been taken. Therefore, it is impossible to make precise predictions about the interactions with stablecoins.
However, I would expect that a digital euro will not necessarily replace private stablecoins.
It currently looks as if the use of the a digital euro might be restricted and that the digital euro might not be based on a DLT. Therefore, using stablecoins as means of payments - especially for DLT use cases as discussed above - could be even beneficial.
The ECB will decide mid-2021 if it will issue a CBDC. Learning from CBDC experiences from other jurisdictions such as China, it seems unlikely that – even the ECB decided to introduce a digital euro soon – the digital euro will be introduced within the next few years.
My personal opinion is that we might see a CBDC around 2026.