ECB launching a CBDC: What are the possibilities?

The Bank of France recently released analyzing the possibilities of the (European Central Bank) ECB launching a CBDC. The report contained that the adoption of CBDC by the bank relies on certain guidelines for the asset because it will be merged alongside existing provisions so there won’t be any need for legal texts.

ECB, in recent times, has taken bold steps after the bank’s president Christine Lagarde has been positive regarding issues around CBDC. According to her, the digital currency would ensure faster and efficient cross-border payments as it has been a source of concern to the bank and its users.

However, CBDC issues have been a central theme in matters discussed by central banks of different countries after China has started making giant strides towards creating a digital asset to be controlled by the government. In response to China, agencies around the world are beginning to process developing their own CBDC.

However, the bank of France report clarified that if CBDC issuance goes beyond “a mere technical procedure,” the ECB would have two main options to facilitate implementation.

ECB launching a CBDC: Options available

According to the report, CBDC would have to be equated in the form of fiat currencies, which would enable the digital currency to work as banknotes. With that in place, CBDC would function like every other fiat currency, and there would be a restriction on CBDC’s qualities.

Launching a digital coin would lead to the need for a consensus from Member States [TFEU Article 128(2)], who are all in charge of issuing the coin. It would also require a legal act since all European countries are in charge of ECB launching a CBDC.

CBDC creation in the form of physical fiat currencies would kill their international function, which would forfeit its creation as proposed by Lagarde.

The second option, as revealed by the bank of France in the report, is accepting CBDC issuance due to the rise of “dematerialization” and relaxing its execution into its monetary policy. With that, CBDC would be acceptable as a medium of exchange and ensuring ease of payment systems.

Featured Image by Wikipedia