The European Central Bank (ECB) is to present a taskforce’s findings on the pros and cons of launching a digital euro ‘in the coming weeks’ – and will then launch a public consultation.
The update on the ECB’s plans was given on 10 September by the institution’s president, Christine Lagarde, in a speech at a conference organised by the Deutsche Bundesbank.
Addressing Germany’s central bank’s (virtual) ‘Banking and Payments in the Digital World’ event, Lagarde emphasised that the Eurosystem, which is the eurozone’s monetary authority, has “so far not made a decision on whether to introduce a digital euro”.
Lagarde, who took over as ECB president in November last year, told the audience that – “like many other central banks around the world” – the ECB had been “exploring the benefits, risks and operational challenges” of introducing a central bank digital currency (CBDC).
“The findings of a Eurosystem taskforce are expected to be presented to the public in the coming weeks, followed by the launch of a public consultation,” Lagarde said in her speech. “These efforts form part of our readiness to face the ongoing digital transformation in retail payments, which does not necessarily follow a linear path…. central banks can and should, within their mandates, be agents of change and fulfil their responsibilities towards citizens.”
Digital euro for retail payments: three considerations
The ECB confirmed last year that it was investigating how a European public digital currency could work and whether it would be desirable.
The Frankfurt-headquartered institution’s work in the area mirrors how most central banks, as well as major tech companies, most prominently Facebook, explore the potential for launching their own digital currencies. China is widely seen as leading the way.
Lagarde told the Bundesbank conference that launching a digital euro would put the Eurosystem “at the cutting-edge of innovation”.
Focusing on the possibility of a CBDC for retail payments, she emphasised three overall points.
First, that the Eurosystem would continue to ensure that all citizens have access to banknotes “at all times” and that a digital euro would be a complement to “not a substitute for” cash.
Second, that “risks need to be carefully assessed”. She said that if “significant” amounts of bank deposits move into a digital euro, “that may fundamentally change the role played by the banking sector in financing the economy, which would have implications for how we at the ECB implement monetary policy and support financial stability”.
Third, she said that a digital euro should not “discourage or crowd out” private payment methods.
‘We need a thorough understanding’
The Bundesbank conference continued on 11 September with a panel session involving Bundesbank president Jens Weidmann and Banque de France governor François Villeroy de Galhau, chaired by Bank for International Settlements (BIS) head of research Hyun Song Shin.
Weidmann struck a cautious note on the topic of CBDCs, saying: “The introduction of CBDC needs careful consideration. Many issues surrounding CBDCs still require further analysis.”
Weidmann said that Bundesbank staff “across various business units” were “currently taking a closer look” at the opportunities and risks presented by a CBDC and “what they mean for its design features”. He added: “It would be wrong to interpret this as a decision in favour of CBDC. We need a thorough understanding and to keep an open mind before we can weigh arguments and draw conclusions.”
Benoît Cœuré, a member of the BIS executive committee and head of the BIS Innovation Hub, said in June that COVID-19 was accelerating the pace towards a functioning CBDC. The pandemic “will be remembered by economic historians as the event that pushed CBDC development into top gear,” he said.