A digital euro would be central bank money available to private citizens and businesses. Today, central bank money in digital form is available in accounts held with the central bank, but at present only banks can use this facility. Individual members of the public or businesses cannot at present borrow from or deposit funds with the central bank, but banks can.
A central bank digital currency is intended to function as digital cash. The aim is not to replace banknotes and coins, but to serve alongside them as a supplementary means of payment. From the perspective of the citizen, the digital euro would scarcely differ from current means of payment.
Central bank digital currencies have nothing to do with virtual currencies. A European CBDC would not be a new currency, but a digital expression of the euro.
There is still widespread demand for cash. To judge from the statistics, there is even greater demand for banknotes today than there used to be, but for daily payments an increasing number of new forms of payment have emerged alongside them. Payment has shifted largely over to digital instruments provided primarily by credit and payment institutions and other companies offering commercial services. Thus, the decline in cash payments is leaving retail payments increasingly in the hands of commercial actors.
With the decline in the use of cash and the spread of new payment methods, central banks all over the world have begun to consider the possibility of issuing CBDCs. This debate has also been fuelled by the plans of large technology corporations to offer new payment methods.
There was talk of electronic payments and digital money already over 30 years ago, with the spread of the Internet. To date, no central banks have offered a generally available digital means of payment, with the exception of some short-lived trials. One such trial was the Avant card money developed by the Bank of Finland in the 1990s. Avant was designed for a world in which the use of cash was declining and buying and selling took place in an increasingly digital environment. The Avant card could be used in public telephones, but at its height it also worked in public transport, kiosks, shops and even in online purchases. The Bank of Finland sold its Avant activities to commercial banks in 1995, after which Avant became merged into the banks’ normal service provision.