The European Central Bank (ECB) recently published a report about the digital euro, stating that it needs to be prepared for a time when a CBDC becomes necessary. However, the central bank has clarified that this report has been made public just to raises more questions before officially exploring the digital euro.
The bank said in the report that it expects to officially begin experimenting with a central bank digital currency (CBDC) by mid-2021.
The recent report discussed the impact of a CBDC on the retail payments systems, and how the digital euro could fit within the Eurosystem. But, the report doesn’t discuss which model ECB should take when and if it designs its CBDC.
According to the report, the central bank expects to start a CBDC program “to ensure meaningful answers are obtained to the open questions raised” by the second quarter of 2021. The project would initially launch with an investigation phase to develop the digital euro and conduct experiments.
It added that ECB needs to consider the views of the various stakeholders before it can start discussing the issuance of the digital euro.
Furthermore, the report adds that CBDCs could allow for more financial accessibility:
“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.”
Digital Euro must meet some requirements
The ECB also notes the various requirements the digital euro must meet before it is created. These include the ability to keep up with technology and being available “through standard interoperable front-end solutions throughout the entire euro area and be interoperable with private payment solutions.”
Secondly, it must be easy to use and have functionalities “that are at least as attractive as those payment solutions available in foreign currencies or through unregulated entities”. Basically, it must be a tool to improve monetary policy transmission.
The ECB also wants the digital euro to be available outside the Eurozone, be cost-saving and its design is environmentally friendly, meaning it should be built on technology that minimizes ecological footprints.
Meanwhile, the central bank stressed on the fact that its digital currency mustn’t be designed as a means for investment, and shouldn’t even be considered a cryptocurrency or a stablecoin. It must only be used as a form of payment to avoid fluctuations in price:
“Given the risks for monetary policy transmission and financial stability, it is not desirable for the digital euro to attract very large investment inflows. However, if individual holdings of digital euro were too low, either because of rigid constraints or because of disincentives applied above a relatively low threshold, then the digital euro would be less attractive as a means of payment and less competitive than alternative instruments.”
It is clear that the idea of a digital euro is still in its infancy and ECB wants to discuss various technical and organizational models before launching the CBDC.