The European Central Bank (ECB) has confirmed that it is investigating how a European public digital currency could work and whether it is desirable, with its conclusions expected next year.
The ECB’s research into the feasibility of what has been dubbed a ‘digital euro’ comes as both nation states and the world’s largest tech corporations ramp up preparations for their own digital currencies.
Progress on the feasibility of an ECB-backed digital currency could be made in the coming months, senior officials have told Reuters, cautioning that the project is a long-term one and faces a range of challenges. France’s finance minister, Bruno Le Maire, told a news conference in Brussels: “The fact that it is for the long term does not prevent us from working and having results next year.”
An official told Reuters that the Frankfurt-headquartered ECB is working on the technical aspects of a digital currency and will present findings to European Union governments soon. EU finance ministers are reportedly set to issue a joint statement welcoming the ECB’s work on the topic at a meeting in early December.
The ECB official told Reuters that several options are being studied. Under the most ambitious plan, users of the new digital coin could open bank accounts directly at the ECB. Alternatively, banks could be given electronic cash or tokens by the ECB that they could then distribute to their customers. The debate is at this stage focused on whether a public cryptocurrency is feasible or desirable, the official cautioned.
More detailed reports have said that the ECB is exploring both a retail and wholesale central bank digital currency (CBDC), as well as experimented with blockchain. “We have a dedicated team looking at this in the ECB. Even if we’re not particularly vocal on this compared to other central banks, we’ve been doing a lot in the past,” the ECB’s innovation team lead, Dirk Bullmann, reportedly told the ‘Convergence: The Global Blockchain Congress 2019’ conference in Spain.
Since the start of November, the ECB has been overseen by Christine Lagarde, the former International Monetary Fund managing director, who has previously made positive comments about cryptocurrencies’ potential.
The Berlin-headquartered Association of German Banks (Bundesverband deutscher Banken) published its position on digital currency at the end of October, calling for a ‘crypto-based digital Euro [to] be created’. The paper warns: ‘Europe must keep up with [the] competition so that the global financial architecture does not lead to a polarisation between American or Chinese solutions.’ And Germany’s finance minister, Olaf Scholz, spoke out in favour of a digital euro last month.
Meanwhile, Valdis Dombrovskis, the EU’s top economics and financial commissioner, has said that “we [Europe] need to ensure a common approach with member states in crypto-assets”. Dombrovskis this month described Facebook’s proposed Libra digital currency as a “wake-up call” for the EU institutions and market players, media network Euractiv reported. The Latvian said that Facebook’s ambitions show there is a market gap for cheap and instant payment systems, and “this is what we should be working on”.
Facebook five months ago confirmed its plans to launch a global cryptocurrency in 2020. But the US-headquartered company’s so-called stablecoin, known as Libra, has faced a backlash across the Eurozone, with finance ministers concerned about governments’ monetary sovereignty.
Regulation, competition, and crisis
Separately, the Association for Financial Markets in Europe (AFME) – another financial sector lobby group – has this month published a 22-page paper outlining five recommendations to support “supervisory convergence” on crypto-asset regulation. Recommendations include setting “clear expectations” for market participants on issuing crypto-assets and “prioritising convergence of regulatory frameworks with other global and regional initiatives”.
The group says Europe “has the opportunity to become a global leader in the regulation of ‘crypto-assets’.”
As Global Government Forum reported earlier this month, China looks set to become the first major nation to launch a digital sovereign currency: the digital yuan. China’s Digital Currency Electronic Payment (DCEP) project, five years in the making, will incorporate the use of blockchain technology and see the currency distributed through so-called digital wallets.
In another development, the US Federal Reserve has this month warned about a possible stablecoin crisis and its impact on the global economy. The 60-page report said that a global stablecoin network “if poorly designed and unregulated, could pose risks to financial stability”.