Top officials at the European Central Bank making the case for the digital euro have explained in a new article that unsupported cryptocurrencies are not an efficient means of payment and stablecoins are vulnerable to running. Officials have identified key objectives for the project as giving Europeans “easy access to central bank money” in the digital age.
Trend towards digital currency poses risk, warn senior ECB officials
Maintaining access to central bank money is critical to financial stability as payments increasingly become digital. According to European Central Bank (ECB) President Christine Lagarde and its executive board member Fabio Panetta, the digital euro could achieve this.
High-ranking representatives of the eurozone’s monetary authority have voiced their support behind Europe’s central bank digital currency (CBDC) in an excerpt published in the bank’s blog this week, noting what they call a “successful model for payments” that many What went on for decades has now been challenged.
Sustainability in the current model rests on private money backed by public money that acts as an anchor. But payments are now undergoing a potentially disruptive change. People are paying digitally instead of cash, the trend toward convenience and opportunity, which also brings some risk, elaborates the co-authors .
With the decreasing use of cash, public money may eventually lose its role as a monetary anchor in Europe, and the euro – of trust and international importance. A digital payments ecosystem without a strong monetary anchor would create confusion about what qualifies as money, Lagarde and Panetta say, providing an example with cryptocurrencies:
They cannot guarantee one-to-one convertibility from central bank money. They are not an efficient means of payment, especially if their value is not backed by an asset. And, in the case of stablecoins, they are unsafe to move.
Then there is the danger of some providers being dominated by private sector solutions. Big tech companies can use their large customer base to expand rapidly, increasing the risk of market-abusive behavior, and the fact that the majority of them are based outside the European Union by non-European players. Payments may dominate the market, central bankers caution and emphasize:
This means that, if we are to maintain a stable and reliable payment system in Europe, we must maintain the role of central bank money in the digital age.
The ECB chairman and board member stressed that this is the reason why the bank launched the digital euro project a year ago. Introducing a digital version of the euro will ensure that EU citizens can rely on the monetary basis behind their digital payments. The hope is that it will also protect the autonomy of European payments and improve the efficiency of the payment system in general.
Widely Accepted Digital Euro Could Make a Difference, Panetta and Lagarde Believe
Christine Lagarde and Fabio Panetta are convinced that the digital euro can only succeed if it becomes part of the everyday life of Europeans. The specifics of its design are yet to be determined, as the investigation phase of the CBDC will take at least another year, but some key principles are already clear, he says.
Wide acceptance, ease of use, low cost, high speed, security and consumer protection are qualities that users will appreciate. Traders will look for the integration of the digital euro with existing systems along with low cost and ease of use. The new incarnation of Europe’s common currency should also support the financial inclusion of people with limited access to digital payments.
Privacy should be enjoyed by the highest standards, ECB chief insists. They think people should be able to choose how much information they want to disclose, but there is one condition “as long as they comply with prevailing laws.”
There are also pitfalls to be aware of, Lagarde and Panetta point out. Financial authorities in the union need to ensure that the digital euro is used as a means of payment and not as an investment. Otherwise, they run the risk of too many commercial bank deposits going to the central bank which can create tension in the banking system.
Bankers say that security should be provided from the very beginning. ECB officials have concluded that a carefully designed digital euro will facilitate the transition of European society and economy into the digital age as public financial authorities focus their efforts on maintaining the integrity of monetary and payment systems.
This story tagged in article, board members, cbdc, central bank, crypto, crypto assets, cryptocurrency, cryptocurrency, digital currency, digital euro, digital payments, ecb, eu, euro, european central bank, laggard, objective, panetta, payments , president, risk
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