CNN – Business/Consumer By Julia Horowitz, CNN Business As the use of currency drops and China cranks up testing of its own e-yuan, the European Central Bank is forging forward with efforts to develop a digital equivalent of the euro.
On Wednesday, the central bank announced the start of a two-year inquiry into “important problems related design and distribution” of a digital euro, as well as the possible market impact.
Later, a final decision on whether or not to implement a digital euro would be made.
“With the digital transformation underway, which has the potential to disrupt the payments landscape and even the entire financial system,” Fabio Panetta, a member of the ECB’s executive board, wrote in a blog post.
A digital euro would not replace cash, but it would work similarly.
Europeans might utilize an electronic form of money issued by the European Central Bank or national central banks to a digital wallet instead of paying for products or services using banknotes.
Panetta stated that once the investigation phase is completed, the central bank plans to begin constructing a digital euro.
Following that, the procedure “may take roughly three years,” putting Europe on schedule to introduce a digital currency as early as 2026.
Why is Europe acting? The ECB admits that “many problems remain unanswered” before a digital euro is implemented.
President Christine Lagarde said in a statement that the central bank believes it is worth investigating to “guarantee that in the digital age individuals and enterprises continue to have access to the safest form of money, central bank money.”
The ECB is obviously clearly concerned about the ramifications of delaying action for too long.
Francois Villeroy de Galhau, the governor of France’s central bank, said in a speech last month that central bank money may be phased out when the use of currency diminishes and new digital coins and tokens arise.
After Facebook announced ambitions to launch a digital currency in 2019, Europe began to take the idea of a digital euro more seriously.
Villeroy also highlighted China’s efforts in developing a digital yuan, which is already available in several Chinese cities.
“There is a clear risk that Europe will lose momentum not only in its efforts to strengthen the euro’s international role, but also in its efforts to preserve it,” he warned.
“The difficulty here is also a geopolitical one,” says one expert. Yet, given how many people already use credit or debit cards or mobile payment systems, other experts doubt that a digital euro is required.
“I’m not sure people really need this,” Gregory Claeys, a senior fellow at the Brussels-based think tank Bruegel, said.
Officials at the Federal Reserve in the United States are also considering the creation of a digital currency, though they are proceeding with more caution than their European counterparts.
Last month, Randal Quarles, the Federal Reserve’s vice chair for supervision, stated that any proposals to develop a central bank digital currency, or CBDC, must pass a “high bar.” “Before we get carried away with the novelty,” he added, “I think we need to expose the promises of a CBDC to a careful critical review.”
He said that the US dollar is already “extremely digital,” and he dismissed the concept that the US must act simply because other countries have done so first.
“It appears improbable…
that a foreign CBDC will jeopardize the dollar’s status as a worldwide reserve currency or its role as the dominant currency in international financial activities,” Quarles said.
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