While European lawmakers are debating the idea of a digital euro, other nations and private corporations are taking action. Time is a critical factor in the race for global currency hegemony.

France’s minister of finance said Libra must not be allowed to become a sovereign currency. A currency run by a private corporation could pose a risk to the current financial system, he argues. 

But what is the alternative? Digital currencies have come to stay, and attempts to stop technological progress have rarely proven successful throughout history – and it wouldn’t be an intelligent approach either. 

Now German politicians have suggested the European Central Bank should develop a digital Euro, an alternative to Libra. It would add massive economic benefits to the euro-zone and warrant governmental control over the money supply. 

The international arms race to a dominant digital currency has begun

As German lawmakers are debating, Chinese authorities are already taking action. The People’s Bank of China (PBoC) last week unveiled it is already developing a digital currency. 

Wang Xin, director of the PBoC research bureau, expressed his worries that if Libra is used for cross-border payments, it will have “a large influence on monetary policy, financial stability, and the international monetary system.”

However, the real concern of Chinese authorities is not Facebook, but a further strengthening of the U.S. dollar hegemony. 

“If the digital currency is closely associated with the U.S. dollar, it could create a scenario under which sovereign currencies would coexist with U.S. dollar-centric digital currencies,” says Wang Xin. “But there would be in essence one boss, that is the U.S. dollar and the United States. If so, it would bring a series of economic, financial, and even international political consequences.”

In other words, the international arms race to a digital currency has begun. 

Some European politicians have heard the alarm bells. Thomas Heilman, member of the German parliament, says Europe needs to get into gear. Once another digital currency – either run by a private corporation or a national government – takes the lead in the market, it will be hard for a digital euro to compete.

Technological implementation not a challenge, but political-decision making process will take time

A stable digital currency that is widely used as a means of payment could add massive value to the European economy. In particular cross-border payments would become significantly faster and cheaper. 

For businesses and consumers, it doesn’t matter that much if such a currency is run by Facebook or the government, as long as it’s stable and easy to use. Tankred Schipanski, member of the German parliament, nailed it when he said the most comfortable solution would eventually dominate the market. 

Launching a digital euro wouldn’t even be difficult. The technological implementation would take only a few months, says Heilmann. The political decision-making process, however, will take more time. That’s where private corporations and authoritarian regimes have the speed advantage. 

The demand is already there, but supply is still missing

Agustin Carstens, chief of the Bank for International Settlements (BIS), has acknowledged that central banks will soon need to issue their own digital currencies. The arrival of such currencies might just be around the corner, he says, if there is clear evidence of demand from the public. 

 “[I]t might be that it is sooner than we think that there is a market and we need to be able to provide central bank digital currencies,” Carstens said to the Financial Times.

But the demand is already there. People use electronic money every day. A central bank digital currency wouldn’t be that different, but it would be cheaper and faster. Why would users not want to make use of these benefits? 

Central banks have to create the supply first – the market will adopt it in no time. Any further delay will only result in others reaping the first-mover benefits. Where do we want Europe to be in ten years from now – a leader of digital innovation or at the hands of China and Facebook?