The Spanish central bank approves the euro digital token EURM

The Bank of Spain (Central Bank of Spain) has authorized the testing of a digital euro token EURM.

The token will be issued by the Spanish fintech Monei and was developed within the central bank’s digital ‘sandbox’ program.

Spanish news site Cinco Días reported that the project would be limited to a small group of test applicants during the initial phase. Applicants must enter a phone number and undergo a video-based KYC process before loading their digital wallets with traditional euros through the Spanish payment app Bizum.

Once the wallets have been funded, users can send EURM tokens to other participants and registered companies. The deposited FIAT euros will be kept in two designated bank accounts with BBVA and CaixaBank. All EURM tokens will be backed 1:1 with FIAT at all times, according to the announcement.

The pilot is expected to last up to 12 months, with reports produced to allow the central bank to decide whether to authorize an official launch. At the same time, there are already euro-pegged stablecoins such as Circle’s EUROC, Tether’s EURT, and Stasis Euro. Tether’s Euro token has the highest TVL, with a market capitalization of $223 million at press time.

The Bank of Spain does not sanction stablecoins issued by companies such as Tether and Circle. As a result, the central bank must have the ability to verify reserves to ensure that all digital tokens are backed 1:1 with FIAT.

The founder and CEO of Monei, Alex Saiz Verdaguer, stated that “there are different projects, but it is very likely that there will be convergences along the way.” Furthermore, he stated that EURM “could be a pilot test for the ECB”. Therefore, while the EURM token may not be revolutionary with respect to stablecoins, its connection to the central bank of Spain indicates the progression of CBDCs.

However, unlike other euro-pegged stablecoins, the vision of EURM is to allow the Bank of Spain to control the issuance of “programmable money”.

Verdaguer told Cinco Días that the tokens could be programmed to avoid negative balances, allowing smart payments to be delayed until funds are available.

Such facilities could help users avoid overdrafting and paying additional bank fees. The digital currency could also be programmed to process companies’ payroll at pre-defined intervals automatically.

Still, the level of control given to central banks through programmable money also increases the risk of government exploitation. For example, central banks could remotely restrict the purchasing power of any digital currency user or limit the use of specific services and products. Additionally, taxes could be controlled via smart contracts by paying taxes in real time based on income and usage.

Potential use cases for CBDCs have been widely discussed over the years. However, the news of a major European central bank testing the implementation of digital tokens certainly brings the needle closer to realizing a CBDC in Europe.