01 May 2020
As the digital Euro finds its way into France's financial sector, how will the
cryptocurrency industry respond to this addition, and what effect will it have
on France's CBDC?
Digital euro - Bitcoin relationship For almost half a year, the digital euro was taking form, ever sice November 2019 when the French central bank confirmed that it's working on a project to introduce a wholesale CBDC. The work on the framework is already underway in Sweden, with France soon to follow, though Nelson did remark that much further testing will probably be required until a digital euro is user-ready, and whether there's a chance it will be made public:
“Experimentation by central banks with CBDCs will accelerate this year and next. The results will be carefully analyzed before a decision is made. A wholesale CBDC is likely to emerge before a version that’s available to the general public.”
Now, Gauthier opined that the European Central Bank won't have much time, as there are many private sector initiatives like Facebook’s Libra, thus it is extremely important for estabilished financial institutions to act quickly. He stated: “Central Banks and traditional finance must adapt to new technologies to remain relevant for consumers.” He then added: “CBDCs are the Central Bank’s reaction to Libra and more generally to the threat of private crypto-money.”
But, will a digital euro have an impact on cryptocurrencies, and how much? Renaudin believes that, with an advent of CBDC, more reliable cryptocurrency frameworks could take the place of the current ones:
“Wallets and on-chain transactions are still clunky, and very few non-crypto businesses have an IT infrastructure that uses these technologies. It’s a different story once they’ve adapted to a digital euro, which naturally increases the ability of individuals and businesses to access Bitcoin and cryptocurrencies.”
But still, Nelson noticed that Bitcoin (BTC) might fall in popularity when a retail or synthetic CBDC is introduced. However, a wholesale CBDC most likely wouldn't impact Bitcoin:
“A general purpose, or synthetic CBDC could lead to reduced demand for Bitcoin, but even that is questionable. Bitcoin is currently more of an alternative asset class used primarily by speculators. A digital euro will not compete with that.”
In contrast to the previous, Walsen believes that, even though cryptocurrencies could lose value because of CBDCs, the proven traits of privacy and security that Bitcoin is well known for will outweigh any digital fiat. In his words: “Well-established cryptocurrencies do have a jump start and offer more in the way of privacy, security and financial freedom.”
In general, traditional financial institutions did make a genuine step forward. But, as France continues testing its CBDC, it becomes evident that the central banks need to focus on the most essential issues such as privacy if a digitalized fiat is to be well received, otherwise crypto will remain the first choice for those that are conscious of those issues.