At a press conference today, the new European Central Bank (ECB) President Christine Lagarde confirmed that the ECB will accelerate the work of the task force exploring central bank digital currencies (CBDC). The aim is to deliver a paper around mid-2020.
Input from the research efforts of individual European nations will be incorporated to decide on two aspects. First, what would the purpose of a digital currency be? She mentioned the potential to reduce costs, remove intermediaries or financial inclusion. And the second aspect will be the technicalities.
Her personal opinion is that central banks need to be “ahead of the curve” concerning stable coins such as Libra, which Lagarde did not mention by name.
At the same time, the President mentioned that existing instant payment systems could be better exploited. She referred to TIPS the TARGET Instant Payment Settlement launched at the end of last year that enables instant real-time payments 24/7.
Lagarde also referenced PEPSI the so-called Pan-European Payment System Initiative that twenty European banks are working on to bypass Visa, Mastercard, Google and Apple when it comes to payments.
She preceded her comments with a nod to outgoing ECB board member Benoît Cœuré, who is joining the Bank for International Settlements (BIS) as head of its Innovation Hub. Lagarde mentioned his input in the G7 Working Group paper on Stablecoins and a three-page summary prepared for EcoFin published a week ago.
The President’s statement was made in response to press questions, and it was one of the longer answers during the conference.
Update: a few days after this speech, the ECB released a research paper about anonymity and CBDC.
Below the video is a transcript of Lagarde’s comments.
Transcript of Christine Lagarde comments re Central Bank Digtial Currencies
We have set up a task force, and we will accelerate the effort of this task force drawing on the resources of the entire Euro system. Meaning the national central banks that already participate in that research, that have already committed to the project in terms of experimentation, pilots here and there. So, harnessing all the experiments that have taken place and all the research that has already been put into this effort together with the work that has been done here also. I think we’re trying to do that by mid-2020.
We will identify number one the purpose that we have with that. Are we trying to reduce cost? Are we trying to cut out the middleman? Are we trying to have inclusive finance at no cost? There’s a whole range of objectives that can be pursued. So I think we will start by doing that.
Then we will identify the technicalities of it all, which is not a given, particularly when you talk about the Euro system. I think there is also great interest outside our regional area. I know for instance that Canada, the UK, other countries way beyond are certainly looking deeply into that to see if it makes sense, what purpose it serves and how we can best deliver on it.
My personal conviction is that given the developments we are seeing, not so much in the Bitcoin segment, but in the stable coins projects, and we only know of one at the moment, but there are others being explored and under way at the moment, we had better be ahead of the curve if that happens. Because there is clearly a demand out there that we have to respond to.
I would like to add a footnote to that. I think the benefit of the paper is that it also draws a line between this glamorous Central Bank Digital Currency, much talked about and worth exploring, and the digital payments systems that we have and that exist.
We have several items that are completely digitalized that are not at the front end, and that the bank’s clients do not perceive as being in operation. But where settlement and clearing are actually taking place instantly, thanks to the digital payment systems that have been put in place notably within the Euro system.
So on those digital Euro systems that exist, some of which need a better take up by some of the other members of the system, I will continue to push. Because I think we have something which is really worth developing and encouraging. I’m talking here about TIPS and PEPSI and all those acronyms that I should not be using, but I don’t know what they stand for (laughs). All I know is that they deliver in digital terms the operations of clearing and settling, sometimes in one single operation.