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The Association of German Banks, representing over 200 private commercial banks and 11 member associations, has explored the idea of a “programmable digital euro” in a new paper.
Starting off, the paper emphasizes that the stability of the existing monetary system must not be endangered by the provision of crypto-based digital money. The authors said that new forms of cryptomoney represent a significant technological innovation for their ability to be connected to “smart contracts” – computer protocols that map or verify contract terms and automatically execute them.
“The private German banks are convinced that, in a digitalised economy, this form of digital money will rapidly gain in importance. Smart contracts can be connected not only to cryptocurrency but also to account-based book money,” the paper read.
The association recommended that the introduction of euro-based, programmable digital money should be considered in order to maintain Europe’s competitiveness, satisfy customers’ needs and reduce transaction costs.
“A programmable account and crypto-based digital euro should be created and its interoperability with book money ensured. The condition for this is establishing a common pan-European payments platform for the programmable digital euro,” it said.
The paper further noted the importance of regulatory compliance for building public trust in programmable digital money. To that end, it called for legal classification of programmable digital and a uniform supervisory and regulatory framework.
The authors also emphasized a number of factors that should be in place for going digital including measures for proper identification of customers, data protection, and depositor protection, among others. Another area where regulators need to offer clarity is the tax treatment of such programmable digital money.
“German tax law must clarify for income tax purposes whether programmable digital money is a currency or an economic good. The precise design of programmable digital money requires clarification to facilitate its VAT treatment. With respect to wallet management – especially in third countries – tax enforcement must be guaranteed,” the paper added.
Views on Facebook’s Libra
While the association emphasized on creating a digital euro, it is not in favor of private, global digital currencies such as Libra.
The authors said that such private digital currencies are “highly likely” to aggravate economic conflict and upset a country’s economic equilibrium by facilitating massive inflows and outflows of capital.
“Corrective tools used so far, such as exchange rate or interest rate adjustments, would lose in effectiveness if the new form of money were to meet with a high level of acceptance. Measures geared more to tackling symptoms (creation of large-scale currency reserves, introduction of capital controls, currency market intervention) would also lose their applicability,” the paper said.
“A global digital currency, particularly one provided by a profit-oriented, listed company, is therefore not in the interests of a stable global community.”
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