Economists from the ECB believe that the digital euro is essential for the future of the financial system. As it can withstand “artificial currencies” issued by private companies.
In a recent report, the ECB said that in the future, large corporations may issue their own artificial currencies. Which will begin to prevail in international and domestic payments. The dominance of a small group of private foreign suppliers will threaten not only individual individuals and legal entities, but also the stability of the financial system as a whole.
For example, digital currencies such as Libra can become a global means of payment and be used to pay for services and goods anywhere in the world. Given this fact, Lagarde proposed to create and launch a digital euro.
According to the authors of the ECB report, the digital currency of the central bank (CBDC) is able to successfully compete with such artificial currencies and resist their dominance. Helping to preserve the autonomy of payment systems. However, this will need to offer additional products and services based on the digital euro, expanding its scope.
ECB economists attribute additional benefits of using CBDCs to modernizing payment infrastructure and reducing transaction costs. Which will help expand global commerce. The authors also emphasize the need to stimulate the use of the digital euro by ensuring user anonymity and the ability to conduct offline payments.
Late last year, the Board of Governors of the European Central Bank noted other benefits of introducing digital currency into the financial system.
ECB: СBDC – solution to the problems of the banking system
A possible solution to the problems of the banking system could be the launch of its own digital currency – the digital euro. Which will be freely used in digital payment systems of all EU countries. Lagarde herself sees at least three benefits from the introduction of the digital euro.
First, the digital euro will be a supplement, not a replacement for fiat money. So, every resident of the Eurozone will have a choice: pay in cash or pay with digital money.
Secondly, the ECB will gain control over the turnover of the digital euro. This done in order to minimize possible risks associated with the massive transition of users to settlements in digital euros. If there is a bias in the countries towards the digital euro, then the ECB will take appropriate anti-crisis decisions to support the banking system.
Third, the digital euro must meet the population’s demand for digital payments. Without discouraging or crowding out private payment solutions. It will need to capture the respective strengths of both the Eurozone and the private sector to ensure that the payments landscape remains competitive and innovative.
So far, the final decision on the launch of the digital euro has not been made. At the moment, ECB staff are studying the possibility of introducing CBDC, as well as analyzing the benefits and risks.
The coronavirus pandemic and the introduction of strict quarantine measures across Europe have fundamentally changed the payment services market worldwide. Accelerating the digitalization of banking and payment systems. In other words, the pandemic has served as a catalyst, accelerating the transition to the new digital normal.
It is in these conditions the central banks of all countries are seriously thinking about creating a single digital asset. However, experts noted that the release of CBDC in the eurozone does not mean crowding out other instruments.