Christine Lagarde, President of the European Central Bank, has announced that a panel of ECB will soon reveal their view on whether the region needs to create a digital version of its currency. In a virtual event with German’s Bundesbank on Thursday evening, she said that such an initiative might be critical to ensure the bloc stays updated with the global change to digital currencies.
In an earlier report, dGen predicted that China’s CBDC would soon overtake the euro’s position if it did not adopt digital currency soon. Phillip Sander was at the forefront to criticise ECB’s reaction to CBDCs, deeming it too slow. He said further that its efforts to develop a digital currency are currently negligible.
Central Bank Digital Currencies to Overtake Fiat Currency
Launching the CBDC by the European Central Bank will be beneficial to their economy in general. The new technology will improve the efficiency of financial transactions. Further, it will put Europe at the edge of innovation, but it can also bear some risks.
Generally, the CBDC is the next step to the evolving financial systems around the world. There are about three to five nations worldwide set to replace their current fiat currency with CBDC by 2030. It brings about the continuous approval of the idea of digitized currency. Jurisdictions like Sweden are making significant progress in CBDC to the point where the country has announced its plan to go cash-free by 2025.
The idea of CBDC is not exactly new. In 2008, the founder of bitcoin, Satoshi Nakamoto, published his whitepaper on cryptocurrencies and blockchain technology. These events led to the concept of formally adopting the technology.
In 2015, however, when the Bank of England first discussed the concept of CBDCs version of digital currency, other financial institutions started taking notice. Over the years after, central bankers have been proactive in research and discussing implications of digital currency. China boasts a lead at the testing of CBDCs.
ECB Still Exploring CBDCs and Associated Risks
There is no decision by the Eurosystem on whether to introduce a digital euro. Like many other central banks globally, Lugarde states that they are still exploring the benefits, risks, and operational challenges of adopting CBDCs.
The ECB president further stated that it’s not necessarily a concern that foreign payment service providers dominate Europe. However, the disruption to transactions poses a considerable risk. An increase in protectionist policies and an evolving global context are the major contributes to the risk involved.
Lastly, she stated that it is their responsibility to ensure that European citizens choose without exclusion from the payments due to others’ unilateral actions.