Two weeks ago, we reported on a Commerzbank podcast that asserted that the real motivation behind introducing a central bank digital currency (CBDC) would be a desire by the ECB to extend its influence. Hence the fact that the ECB blog post was initially published in the Frankfurter Allgemeine Zeitung may not be a coincidence.
In the blog post, the ECB directors note that a decision has not yet been made to proceed with a digital euro. They hope to head off “misconceptions” that the aim was to abolish cash and impose negative interest rates. And the blog post states there is no desire to displace commercial bank intermediation.
“As long as there is cash, people can continue to hold it at an interest rate equal to zero. Hence, introducing a digital euro cannot make citizens worse off,” wrote the Directors. The Commerzbank economist Dr. Jörg Kräme had argued that a digital euro is likely to accelerate the decline in cash use. While he’s likely correct, that will make it harder to use day-to-day. But it doesn’t prevent citizens from holding cash as a store of value.
Regarding the bank disintermediation point, the Directors said there are ‘strong merits’ in banks continuing to intermediate credit. And they’ve already outlined designs that could head off the risk of the digital euro being used as a major store of value. These include limits on the amount of digital euro that can be held.
Instead, the ECB Directors say the absence of a digital currency might leave Europe open to its payments system being dominated by non-European providers, including tech giants.
Adding a couple of observations to this, Commerzbank, at a technical level, has been one of the most innovative banks when it comes to blockchain payments and tokenized money. So it might want to protect this potential competitive advantage.
Also, there has not been the same pushback from the big banks in the U.S. But perhaps that is because the banks are pushing ahead with their own plans, especially JP Morgan. And a U.S. digital dollar seems pretty far off. U.S. banks may believe their technology might be entrenched by the time the government produces a digital currency.
In contrast, there’s a perception in Europe that the ECB might move relatively quickly. ECB President Christine Lagarde has previously stated she has a hunch there will be a digital euro by 2025.
An investment bank recently published a thought-provoking paper with perspectives on the motivations behind a digital euro. We plan to provide a write-up early next week.