The European Central Bank is keen to expand its role in the development of a European central bank digital currency (CBDC). ECB President Christine Lagarde has already appointed task force to assess the feasibility of CBDC. Will the ECB the first to launch a European central bank digital currency?
09 January, 2020 | AtoZ Markets – Christine Lagarde, head of the European Central Bank (ECB), told that the ECB is still trying to issue a central bank digital currency (CBDC). The ECB is not the only central bank that studies the possibility of a CBDC. Countries like Japan is also looking into a Japanese central bank digital currency. One of the benefits of having such a CBDC is to reduce the usage of cash. Also, faster payment process is a key benefit for CBDCs.
Why is ECB Interested in an European CBDC?
Lagarde previously said that the ECB should be “ahead of the curve” when it comes to CBDC. She also added that the bank doesn’t want to hinder cryptocurrencies created outside its sphere. She added:
“Faster payment processing benefits companies which want to optimize payment processes and the supply chain”.
Besides, Lagarde wants to move forward with a CBDC only if the European Central Bank can do it without stepping on the feet of private banks and their debit cards:
“The prospect of central bank initiatives should neither discourage nor exclude private market-led solutions for fast and efficient retail payments in the euro area. “
After taking over the management of the ECB from Mario Draghi, in early November, she quickly set up a task force within the ECB. The task force is for working with Member States’ central banks to assess “the feasibility of a euro area CBDC in various forms “.
Central Bank Digital Currency Interests around the World
Global interest in CBDC gain more popularity after Facebook’s Libra presentation in the summer. The People’s Bank of China (PBOC) is already working on its digital Chinese Yuan for years. But the officials only started disclosing information about it in late last summer. It reportedly concerned private initiatives could take market share before the government currency launched.
Besides, CBDCs can provide citizens with a medium of exchange if “physical cash eventually decreases”, possibly in tandem with private crypto initiatives.
Most central bankers have described the relationship between cryptocurrencies, CBDCs and fiat currencies as exclusive and contradictory. Bank of England outgoing governor Mark Carney said last year:
A CBDC multi-fiat-backed could very well replace the US dollar as the dominant global reserve currency.
IMF chief economist Gita Gopinath argued that cryptocurrencies, including CBDCs, lack key infrastructure and global acceptance to tackle the greenback successfully.
Lagarde said that cryptocurrencies could solve many of the problems with the legacy financial system. But they could also present new risks for users. Last month, she expressed concern that Facebook could use its digital platform to block rival stablecoin operators and thereby gain an unfair advantage.
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