At the Deutsche Bundesbank virtual conference on 10 September 2020, President of the European Central Bank (ECB) Christine Lagarde gave a speech on banking and payments in the digital economy. Lagarde once again mentioned possibly introducing a digital euro when discussing initiatives to strengthen European payment systems.
Lagarde considers “central banks can and should, within their mandates, be agents of change and fulfill their responsibilities towards citizens.” She continued by saying that central banks need to anticipate the change, risks, and potential of digital innovations.
The ECB president identified two trends in global payments. One is the increasing consumer preference for digital payments, and the other is the competition to dominate payments on a global scale. On this note, she referred to the G7 working paper on stablecoins and Facebook’s Libra. That brought her to the digital euro, saying, “introducing a digital euro would allow the Eurosystem to be at the cutting edge of innovation.”
Lagarde acknowledged that digital wholesale money is not new, but the technology to be used to make financial transactions more efficient will be. On the other hand, retail use of a central bank digital currency (CBDC) is very different. She highlighted three considerations to take into account.
The first will be to ensure the Eurosystem will continue to make banknotes accessible to all citizens. The digital euro will be regarded as a complement to physical cash, not a substitute. The aim will be for digital euro and cash to support consumer choice and financial inclusion, which is in line with the ECB’s policy of respecting consumer payment preferences.
The second consideration is the potential risks, which could have direct consequences to the way the ECB implements monetary policy and manages financial stability. This could occur if a significant amount of consumers chose the digital euro over bank deposits.
Last but not least, Lagarde stressed that a digital euro should not discourage private payment solutions. While it’s important to meet consumer demand for a digital payment system, innovation should still be welcomed in the private sector too, “to ensure that the payment landscape remains competitive and innovative.”
A final decision has not been made whether or not to introduce the digital euro, but the CBDC Task Force should be releasing their findings to the public in the next few weeks. After this, a public consultation will be opened.
As noted by Lagarde herself, banks all over the world have been looking at possibly issue their own CBDCs. The digital euro has certainly been on the ECB’s mind for a while now. At a press conference in December 2019, Lagarde confirmed the ECB will accelerate the work of its task force exploring central bank digital currencies, which was created in November 2019.
In May 2020, Member of the ECB’s Executive Board and Vice-Chair of its Supervisory Board, Yves Mersch, gave a speech regarding ECB digital currency at the Consensus 2020 virtual conference, emphasizing the ECB’s willingness to introduce a digital currency if it’s feasible. And the European System of Central Bank’s (ESCB) EUROchain research network published research by Accenture on anonymity for CBDCs.