The European Central Bank (ECB) is likely to expedite its process of issuing a European CBDC if cash usage continues to show signs of unsustainability, thereby incentivizing the public to move to digital payment modes.
It all started in June when social networking giant Facebook revealed its plans for stablecoin Libra, a private cryptocurrency that, on the one hand, aims to change the face of traditional banking systems and offer payment solutions to millions across the globe, but on the other, struggling to find support from regulators and government entities. Sensing a severe threat, the ECB came up with a plan last month to suppress the hype surrounding project Libra by developing its own cryptocurrency. The governor of the Bank of France, Villeroy de Galhau, announced yesterday that the nation would pilot the testing of digital euro as early as the first half of next year.
ECB could fast track launch of European CBDC
However, according to an official document made public today, the ECB could very well accelerate its plan to launch its central bank digital currency (European CBDC), if the consumer trend exhibits a decline in cash demand.
And although Facebook’s pet project may not make its way into the European economy, it certainly has disclosed some cracks in the system such as a highly fragmented payment landscape and an absence of a unified system that facilitates faster transactions for lower costs.
The document clearly states that if existing technology and innovation fail to offer a pan-European payment solution, the need for a central bank digital currency is only going to become stronger. On Thursday, the EU finance ministers are expected to get together to discuss further implications of assuming joint stance over the adoption of standard digital currency.
Although cash payments are still prevalent in Europe, a public cryptocurrency could bring down costs related to international remittances significantly and potentially serve as an alternative to private projects like Libra.
ECB yet to assess its far-reaching consequences
The ECB document also states that the reduction in dependency on cash could trigger a faster launch of central bank-backed digital currency. That said, it will have widespread implications on the entire region’s monetary system. It could entirely modify the existing monetary policy, transform the banking sector by altering processes like credit intermediation and bank funding, the report explains. Thus, a careful assessment of ups and downs would be extremely critical at this point.
One possibility is that the users with public digital currency would directly open the bank accounts with ECB, thereby making the traditional banking and payment systems inessential in no small extent. Another is the one quite similar to how a digital yuan would function, in which banks would administer the supply and distribution of electronic tokens, consequences of which are far less radical.
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