Should the world’s central banks move ahead with plans to launch digital currencies of their own, recent statements indicate that such initiatives will complement existing payment methods rather than seek to replace them.
That particular design dynamic was invoked this week, particularly in the context of a so-called digital euro, which the European Central Bank is developing and may very well go live in the coming months. As The Block reported Thursday, ECB chief Christine Lagarde said that Eurosystem officials are nearing a decision on whether to move ahead with a digital euro.
In her remarks, according to a published transcript, Lagarde invoked the intended complementary nature of a digital euro, stating:
“The Eurosystem will continue to ensure that all citizens have access to banknotes at all times. A digital euro, in any event, would be a complement to, not a substitute for cash. Together they would support financial inclusion and offer a choice to consumers. This is in line with our policy of respecting consumer preferences when it comes to means of payment.”
She went on to invoke a decline in the use of cash “a digital euro would also ensure that sovereign money remains at the core of European payment systems. And it would support innovation by providing an alternative to private forms of money for fast and efficient payments in Europe and beyond.”
A recent research report from the Bank of International Settlements, which examined a number of CBDC initiatives, found a common theme of complementarity among such projects. This is perhaps unsurprising, given the stated desire by central banks to avoid financial system disruption. Similar findings were included in The Block’s recent study, A Global Look at Central Bank Digital Currencies.
A Friday speech by François Villeroy de Galhau, Governor of the Banque de France, got a bit more into the weeds on the complementary nature of a possible digital euro. His speech centered around both a possible CBDC as well as the European Payments Initiative, a pan-continental digital and card-based payments project launched this year. Indeed, he spoke about the hope for integration between public and private systems — something that Andrew Bailey, head of the U.K. central bank, spoke about last week.
As de Galhau noted:
“Let me stress there is no contradiction, as sometimes feared by commercial banks, between considering a euro-CBDC and supporting EPI. We may probably need both, and build complementarity. My preference would be to seek a renewed public / private partnership for the dissemination of central bank money in a retail form. Possible impacts on the banking sector could be reduced with different tools: for instance, limiting the quantity of digital euro in circulation would prevent excessive shifts of commercial bank money into digital euros. For the Eurosystem, this strategy would imply to clarify the interplay we would like to put in place between EPI and the CBDC, thus validating an intermediated model while providing enough customer proximity and value added to intermediaries (like front-end solutions).”
De Galhau’s speech was revealing in other ways. Whereas Lagarde didn’t invoke the existence of stablecoins (which Bailey discussed at lentgth last week), de Galhau remarked that “[s]tablecoins in particular may compete against both commercial and central bank money, even though they do not offer the same guarantees in terms of credit risk, liquidity, service continuity, and neutrality.” He later said that the Eurosystem “cannot allow ourselves to lag behind on CBDC.”
As for the likelihood that a digital euro does go live, neither de Galhau or Lagarde offered much more than a possibility. Still, de Galhau invoked the pressure to make a decision of some kind on the payments front, noting that “Europe has not developed global social networks like some important countries.”
“This raises the stakes for the European authorities, if they want a stronger, more autonomous and more innovative European financial sector, to succeed in developing a coherent strategy, he said. “We do not have much time to decide this consistent European payment strategy, including EPI and a possible CBDC: one to two years.”
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