Researchers determined that the Iberian country is dependent on cash to pay salaries. It would take years to implement a hypothetical plan to manage a “cryptoeuro”.
According to joint research between academics from Universidad Politécnica de Valencia (UPV) and Universidad de Valencia (UV) in Spain, Europe is not in a position to manage its cryptocurrency to replace cash.
The paper entitled “Is the Eurozone an optimal area for cash suppression” concludes that a hypothetical Bitcoin-style cryptocurrency operated by the European Central Bank (ECB) to replace cash would not produce positive results.
The authors Nerea Gómez-Fernández, from the Center for Quality and Change Management at UPV, and Juan Francisco Albert, from the Department of Applied Economics at the UV, consider that there are different levels of cash used in the region since its use is declining in some countries while there is a high dependency on it for transactions and salary payments in some others.
The study noted that Spain has one of the highest percentages of banked citizens, but it is the second regarding salaries received in cash, only behind Greece and ahead of Cyprus, which means that it will take these nations longer to replace euro bills and coins. Among the states with the lowest cash usability are Finland, France, Germany, Austria, Belgium, the Netherlands, Luxembourg, and Estonia.
Concerning these very uneven scenarios, Albert is among those who consider that this is due to “the diverse nature of behavior and permissibility regarding the submerged economy, which is normally associated with greater use of cash.” He also mentioned other elements such as banking crises and the lowest level of relative income in the countries analyzed.
If the region’s financial authorities approved a plan of this type to use a cryptocurrency in the continent, it should be applied gradually and with state support to those sectors of the population with the lowest levels of income and education.
End of Cash
If the hypothetical objective of financial institutions is to fully digitize and create an inclusive payment system, the researchers suggest that it would be best to take advantage of blockchain technology to end cash, thus reducing the costs of transactions and cash printing, as well as fighting corruption and tax evasion.
Throughout the years, the European Union has observed what is happening in the cryptocurrency ecosystem to analyze its evolution and propose new financial mechanisms in its territory. Last September, it was reported that the plans to create its cryptocurrency had been resumed in response to Facebook’s Libra.
Another hint about the creation of a “cryptoeuro” occurred last November when the German Banking Association proposed issuing a digital euro aimed to be competitive with China and the United States of America. The group highlighted the need to create a common payment transaction platform for the whole of Europe with an established legal framework and regulations.
The preliminary document by the European Union proposing to assess the costs and benefits of central bank digital currencies (CBDC) was also a potential endorsement for achieving this objective.
Regarding the well-known interest from central banks in finding a formula to relate to the cryptocurrency, Galo Nuño, a member of Banco de España’s Directorate-General for Economics and Statistics, noted in late 2018 that the banks’ attempt would not only focus on replacing cash with digital payment methods, but also on allowing cryptocurrencies to continue being accepted worldwide and displace traditional money.
By Alexander Salazar