Archive: https://archive.is/2025.04.06-041655/https://www.ft.com/content/40f6e292-839c-4d1f-994e-59bed627b909
(…) That system is on the cusp of huge change, for both political and technological reasons. The weaponisation of the dollar-based financial system — note how the US has cut off access by adversaries to Swift messaging for bank transfers — has prompted quests for alternatives. Ideas include a currency and payments system run by and for Brics countries. Technologies such as stablecoins offer an instant, cheap and 24/7 alternative to the expensive, slow and cumbersome legacy of correspondent banking.
So the fight for domination of the future payments system is on — and the US wants to win. The broader European public may be blissfully unaware. But those in charge of the Eurozone are also determined that this battle for technological control over the economy is one that the EU must not lose. This is the fundamental motivation for the digital euro — a central bank-issued official digital currency that, if done well and fast enough, will rival or outperform the attractiveness of dollar stablecoins.
Without it, Europe faces dangers we have known about for some time — since Facebook’s ill-fated 2019 proposal for its “Libra” electronic currency. Even before that, Europe discovered that when Trump placed sanctions on Iran, Europe could not act autonomously because it was so hard to process trade payments without US-exposed banks.
The fact is that the Eurozone is already shockingly dependent on American payment mechanisms. Some two-thirds of card payments in the Eurozone are processed by non-European card providers, says the ECB; 13 of the 20 countries using the euro do not have national card-payment systems. In those cases, “when you go to buy milk, it’s either [physical] cash or Visa/Mastercard”, as one European central banker puts it. This dependence is replicated in the rapid spread of mobile apps. (…)
The euro and the dollar and such are not digital currencies, you just use the computer to communicate with your bank and the account. I don’t know the fine workings and I would struggle to explain why that’s not the same even in my own language. But I believe that the numbers in your bankaccount are a registration of all the ins and outs over time so the bank basically has an actual calculation of how much ‘real’ money they own you, where with a digital currency each single unit is registered somewhere, so if you transfer it there is an actual transfer of ownership.
I get you, talking about money is weird and affected by semantics a lot. That’s part of my point because we need to decide what’s the core of the idea.
To me currency being digital goes as far as the 70s because once we dropped the notion that money is backed by physical items a lot changed but wasn’t really addressed while we still think of money as a physical object.
For you, as I understand it, you also need some kind of authority to keep track of account balances or at least provide transaction infrastructure as well which is perfectly reasonable definition too.
I believe in the US that role at a very high level is filled by Fedwire while in the EU it’s sort of T2. EU is definitely very fragmented in that regard though.
I’m not really sure on what would be best. Looked up some answers to my own questions, I’ll share them with you in case it helps you. Tried to find the most trustworthy sources without spending all day on it. So not all digital currencies are crypto currencies, but all crypto currencies are digital. There are central banks looking into creating a digital currencie, these are called Central Bank Digital Currency (or CBDC for short).
… in this case not a group of private entities, but the Central Bank would be fully in charge of the new decentralized payment system. The Central Bank would control the issue of cryptocurrency and guarantee a fixed exchange rate between digital currencies and fiat currencies. In such a setup, it will be possible to eliminate problems that hinder wide adoption of cryptocurrencies. …
The CBDC system will be an environment parallel to the one based on fiat currency. Unlike traditional fiat currency systems, the CBDC system will be based on an asset class held outside of the traditional banking system. Thus, any conversion of existing non-cash assets into the Central Bank digital currency will cause outflow of financial assets from existing banking system. Another distinctive feature of this system will be to conduct payments directly between participants, without engagement of third parties (such as clearing houses, settlement institutions, payment systems operators, etc.). This would lead to the elimination of all intermediaries that are currently present in traditional payment systems and revenues generated from them, also by banks.
https://www.bankinghub.eu/innovation-digital/central-bank-digital-currency
But I also wondered what is the difference between this future digital currency compared to the system we have now.
Several systems already perform transactions with digital versions of money. For example, credit card systems let you purchase goods and services on credit. Wire transfer systems enable the movement of cash across borders.
Such transactions are expensive and time-consuming because they involve disparate processing systems. The SWIFT system, a payments systems network consisting of various banks and financial institutions across the globe, is an example—each transfer conducted through the SWIFT network has an associated charge. SWIFT member institutions also function in a patchwork of regulations, each specific to a different financial jurisdiction. Moreover, these systems are built on the promise of future payments, ensuring a time lag for each transaction. For example, reconciliation for credit cards occurs at a later date, and users can file chargebacks for transactions.
One of the aims of digital money is to do away with the time lag and operating costs inherent in current systems by using distributed ledger technology (DLT). In a distributed ledger system, shared ledgers are connected via a common network to record transactions. Entities across jurisdictions can connect, which minimizes processing times. It also provides transparency to authorities and stakeholders. Because the ledger is stored on multiple machines, it is difficult to alter them, especially if they are secured through cryptographic techniques.
One of the key advancements in DLT systems is historically linked encryption methods that chain blocks together (called a blockchain). Blockchains improve the resiliency of a financial network because they make it very difficult to change records or access them.
A blockchain with a decentralized and distributed validation mechanism also solves the double-spending problem, where a digital asset can be spent more than once because there is no physical transfer. When there is an extensive network of automated validators checking encrypted transactions linked by historical information, double-spending is not possible. A large and powerful network is orders of magnitude faster than individual computers or small groups, which cannot keep up with the processing rates of the bigger networks. This speed makes a network uneconomical and exceedingly hard to hack.
Third parties can be eliminated in transactions using blockchains and distributed ledgers; blind signatures hide transacting parties’ identities; zero-knowledge proofs encrypt transaction details, and encryption adds extra security. Examples of this type of digital money are cryptocurrencies like Bitcoin and Ethereum.
Both articles also shed some light on the negatives of this new system (mainly the possible traceability of money), but no doubt this way of money transfer is different from the system we currently have.
