European Central Bank Sees CBDCs as Crucial for Financial Stability
- The European Central Bank is focused on launching a digital Euro, which it believes would strengthen the European economy.
- About 9 countries have launched their own digital currencies, but China’s digital Yuan is the most advanced digital currency at the moment.
The European Central Bank (ECB) has expressed its belief that introducing digital money such as the Central Bank Digital Currency (CBDC) will ensure the smooth continuation of the current monetary system. The remarks were made as part of an ECB Working Paper Series on monetary policies and financial stability in relation to CBDCs.
The ECB’s paper highlighted the growing interest in the economics of money and payment over the last 15 years, which the authors claimed had exceeded a purely academic audience. According to the paper, policymakers are increasingly considering the launch of CBDCs due to the decline in the use of cash and the growth in digital payments. As a result, the authors see CBDCs as the only way to ensure the continuity of the present financial system. A Part of the research read,
There is no regulatory alternative that promises to eliminate the threat to the two‐layer monetary system. Since cash is only available in physical form, it is by construction not “fit” for the digital age.
The authors also examined potential regulatory action that may assist CBDCs in attaining their goals and emphasized the significance of central banks due to their roles in money creation and credit supply.
The study dismissed fears that CBDCs would reduce the credit supply, citing that such predictions were baseless. However, the authors determined that more research was needed on privacy and end-user preferences for CBDC operations.
The European Central Bank and its Push for a Digital Euro
The European Central Bank is the apex bank for the 19 European countries that have adopted the Euro as their official currency. The ECB has grown increasingly focused on launching a digital euro which it said would strengthen the European economy.
Speaking on the importance of the digital Euro, Fabio Panetta, Member of the Executive Board of the ECB at the National College of Ireland, said,
Today I will argue that to preserve this symbiosis, public money must keep its role as a monetary anchor in the digital era. A digital euro would fortify our monetary sovereignty and provide a form of central bank money for making daily digital payments across the euro area, just like cash for physical transactions.
In his keynote address, Fabio noted that the digital Euro would keep the European Central Bank at the helm of affairs amid the ongoing competition in the digital payment space. According to Fabio, central bank-generated digital money would allow everyone to use public money for digital payments. Fabio further claimed that an ECB-created euro would be a logical, trustworthy method of payment created for the public interest.
Many experts believe CBDCs would maintain the successful coexistence of sovereign and private money that has existed up until now. About 9 countries have launched their own digital currencies, and several others are heavily weighing the move. So far, China has the most advanced digital currency.