Yesterday Bloomberg reported that policymakers at the European Central Bank (ECB) will today discuss the creation of a Central Bank Digital Currency (CBDC) or digital Euro. That’s ahead of a formal policy meeting tomorrow under new ECB head Christine Lagarde who has moved over from the IMF.
There is no expectation of an imminent decision.
We previously wrote about the ECB’s experiments with CBDC to date, and ECB comments that it was hard to find a strong motivation for a digital Euro. Recently, the bank made a statement to parliament outlining the issues relating to a digital currency future. We also noted the likely impact of Lagarde taking the helm at the bank.
Lagarde has previously spoken about the potential benefits that digital currencies can have on financial inclusion. Hence her priority could be towards a retail or consumer-focused Central Bank Digital Currency.
A year ago, while at the IMF she stated: “My message is that while the case for digital currency is not universal, we should investigate it further, seriously, carefully, and creatively.”
But since then the landscape has changed. Lagarde’s statement was before Facebook unveiled plans for Libra, which triggered significant attention from central banks across the world. Plus it has become clear that China plans to launch a consumer CBDC soon, with pilots starting this month.
China’s reaction was in part to Libra, but also the fact that 93% of China’s mobile payments are dominated by two private firms, Alipay and WeChat’s WePay. The move to private digital cash is also the trigger for Sweden’s interest in CBDC. In contrast, the ECB has previously argued that across Europe physical cash usage is still high.
Meanwhile, in Europe, there’s also the question of how much influence individual states may have over a decision. Because, for example, France seems to be keen to forge ahead with an institutional or wholesale digital currency which could mainly be used by banks for the settlement of securities. That’s a very different route, and potentially lower risk compared to a consumer currency.
And Lagarde is not the only senior change at the ECB. Benoît Coeuré, a board member, is moving to head up the international BIS Innovation Hub where CBDCs are likely to be a major topic. He previously discussed how Facebook’s Libra could challenge the dollar. The bank of England’s Mark Carney has also previously discussed the potential for a multinational digital currency.
And just yesterday Europe’s Bank of Lithuania published a paper on CBDC in which it noted the scarcity of research into the concept of a multinational or multicurrency digital currency which could benefit international trade.