The European Central Bank is exploring both pros and cons of implementing a digital euro, ECB President Christine Largade said yesterday. ECB expects to publish its findings in the coming weeks before launching a consultation on CBDCs.
Across the world, major central banks are addressing and studying digital currencies. The primary purpose is to fend off competition from Bitcoin and other crypto tokens. Researchers predict digital currencies overtake the fiat currency by 2030, at the top being China’s CBDC.
How the Digital Euro Will Impact its Users
According to a January 2020 paper from the ECB, it offers a glimpse into the central banker’s thinking. CBDC issuing would be as a decentralized digital token, similar to bitcoin, but accepted everywhere. It would be possible to create accounts for every home and business within the central bank itself. Furthermore, it would change commercial banks’ roles but not eliminating them from the system.
Before she became ECB President, she told a Singapore tech conference that she believes that the Euro-zone should consider the possibility of digital currency. In December 2018, Lagarde publicly announced that she was pushing ECB to work on digital currency as she wanted the central bank to be ahead of the curve.
Yesterday, Lagarde explained that a digital euro would be most useful for retail users increasingly ditching banknotes for digital payments. However, when it comes to the general Eurosystem, which includes the ECB and the euro zone’s 19 central banks, a decision has not yet been made.
In a virtual Bundesbank conference, she further stated that they are still exploring the risks, benefits, and operational challenges of adopting CBDC in the coming years. She noted some of the dangers of crowding out private sector solutions and hollowing out the banking system.
Earlier this year, the ECB paper proposed some solutions for the dangers, such as offering a tiered remuneration rate on deposits at the central bank, which will make them less attractive.
CBDC Trials Around the World
In countries like German and other eurozone countries, the use of cash is still prevalent. It reveals that the CBDC appeal in the general eurozone is very negligible, unlike some other countries.
Currently, China is spearheading CBDC trials in its banking system. China is said to overtake the euro’s position in the global economy in the coming years. Even though it will not immediately get to overtake the U.S. dollar, it might do so if it resolves issues surrounding its politics.
Sweden has also been running trials of its e-krona for months now. The central bank of Sweden announced that by 2025, they might be able to go cashless.