ECB releases report on digital euro plans

The European Central Bank (ECB) has released a report in which it states the importance they are placing on a potential digital euro which they are seriously considering and studying with a decision by mid-2021, the bank said.

ECB releases report on digital euro plans

A key part of the Eurosystem’s mission is to provide citizens with riskless money for their payments; the Eurosystem has been providing euro banknotes for nearly two decades. While cash is still the dominant means of payment, new technologies and the increasing demand for immediacy from consumers are changing the way European citizens pay.

This is evident in the expanding role of fast electronic payments. To ensure that consumers continue to have unfettered access to central bank money in a way that meets their needs in the digital age, the ECB’s Governing Council have decided to advance work on the possible issuance of a digital euro.

A digital euro, the report notes, would be introduced alongside cash, it would not replace it.

The report further examines the issuance of a central bank digital currency (CBDC) – the digital euro – from the perspective of the Eurosystem. Such a product would be a central bank liability offered in digital form for use by citizens and businesses for their retail payments.

It would complement the current offering of cash and wholesale central bank deposits. The possible advantages of it and the rapid changes in the retail payment landscape imply that the Eurosystem needs to be equipped to issue it in the future.

“A digital euro could support the Eurosystem’s objectives by providing citizens with access to a safe form of money in the fast-changing digital world. This would support Europe’s drive towards continued innovation. It would also contribute to its strategic autonomy by providing an alternative to foreign payment providers for fast and efficient
payments in Europe and beyond,” the reports says.

A digital euro may even become essential in a number of possible scenarios. For example, if the use of cash were to decline significantly, other electronic payment methods were to become unavailable owing to extreme events, or foreign digital money were to largely displace existing means of payment.

In the absence of a digital euro, the Eurosystem would need to identify alternative tools to respond to the possible materialisation of one or more of these scenarios. For example, a decline in the use of cash as a means of payment could exacerbate financial exclusion for the “unbanked” and for vulnerable groups in our society, forcing the central bank to intervene.

The introduction of a digital euro could address multiple scenarios at once, but it would have profound implications for key areas of central banking, for the broader economic and financial system, and, ultimately, for the life of
European citizens.

The analysis suggests that most of the desirable features of a digital euro derived from the analysis are mutually compatible and can be combined to meet the requirements of the Eurosystem and of users.

The report follows a “pragmatic, policy-oriented approach” to identify the essential elements of an effective digital euro. First, it derives its core principles, which must fully comply with the Eurosystem’s mandate, policies and principles.

It then determines its scenario-driven requirements, which would make the introduction of a digital euro consistent with the fulfilment of the Eurosystem’s objectives and the needs of potential users.

Finally, it identify the broader set of general requirements needed in all foreseeable scenarios to protect the European economy, the European financial system and the Eurosystem from unwarranted implications arising from the issuance of a digital euro.

The paper is a well thought out pragmatic document that gives real insight into the direction of the ECB on CBDC.

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