A European economist has found that a digital euro would be a problem without a solution; just stay and see, he suggested.

An analytical paper released by the European Parliament’s Committee on Economic and Monetary Affairs has given the digital euro a hybrid review. The paper's name summed up its position “ Digital Euro When in doubt, abstain (but be prepared). ”

The document was written by economist Ignazio Angeloni at the request of the parliamentary committee to assess the preparations for the takeoff of a digital euro. Angeloni looked at 10 issues that a “ prospective digital euro ” (PDE) would face, concentrating on its downsides. 

Related: US wholesale CBDC has ‘promise,’ Fed governor says, but retail ‘difficult to imagine

Angeloni wrote that a digital euro would set up the European Central Bank (ECB) in the position of competing with commercial banks for deposits, but collaborating with them as commercial banks give frontend services to digital euro users under an intermediated model:

“This generates potentially adverse incentives and warrants a well-designed compensation structure for the services provided by banks. The ECB reports give no information on this.”

The preface of a digital euro may have a disruptive effect that the ECB is unprepared for, Angeloni found. The digital currency would have to be attractive enough to find a client base, but not so attractive that it undermined the banking system. However, If the digital euro paid interest, it would have to be managed independently from cash interest rates, which could encourage arbitrage operations.

Angeloni concluded with a  quotation from United States Federal Reserve Board Governor Christopher Waller, who told that a central bank digital currency (CBDC) is “ a solution in search of a problem. ” He recommended:

“The ECB ought to continue its exploration and perhaps also launch the testing phase in October, but should not actually launch a PDE unless new elements emerge in the future […] in favour of such step.”

The ECB will decide in October whether to continue its CBDC exploration with a “ realization phase. ”

(DEREK ANDERSEN, Cointelegraph, 2023)