The ECB is looking ‘very seriously’ at the creation of a digital euro, president Christine Lagarde says

Business Insider | Saloni Sardana | Oct 12, 2020

ECB President Lagrade 1 - The ECB is looking 'very seriously' at the creation of a digital euro, president Christine Lagarde says

Key Points

 

  • European Central Bank president Christine Lagarde said Monday the ECB is "very seriously" looking at the creation of a digital euro.
  • At a virtual IMF event, Lagarde said the pandemic has caused many structural changes including the way "we work, we trade, and we pay."
  • She said e-commerce rose by almost one fifth in terms of volume and size between February and June 2020 due to the pandemic.
  • But she said a digital euro will only be a "supplement" to cash, and would never replace it.

The European Central Bank moved a step closer to exploring the creation of a virtual currency, after president Christine Lagarde said on Monday it was "very seriously considering" a digital euro.

At a virtual meeting hosted by the International Monetary Fund, Lagarde said:

"The ECB is very seriously looking at a digital Europe."

She said the COVID-19 pandemic has led to many structural changes including the way "we work, we trade, and we pay."

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Digital payments have increased significantly as a result, particularly in countries such as Germany and Italy where "cash was king," Lagarde said.

"People [used to] walk around with banknotes in [Germany and Italy]," she said.

Lagarde said the pandemic caused e-commerce to rise by almost one fifth in terms of volumes and sales between February, when the outbreak first hit Europe, and June this year, when many of the toughest lockdown restrictions eased.

"There is much more confidence in digital payments and significant change is underway," she added.

In a study published earlier this month, the ECB said a digital euro would help citizens with access to quick money in a fast-changing digital world.

"We should be ready to issue a digital euro if, and when, developments around us make it necessary," Fabio Panetta, member of the European Central Bank's executive board said in a blog post related to the study. "This means that we already need to be preparing for it."

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A Digital Euro for the Digital Era

European Central Bank | Oct 12, 2020

Introductory statement by Fabio Panetta, Member of the Executive Board of the ECB, at the ECON Committee of the European Parliament

Frankfurt am Main, 12 October 2020

Madame Chair, honourable members of the Committee on Economic and Monetary Affairs,

Thank you for inviting me to present the Eurosystem report on a digital euro.

The quest to ensure that means of payment are fit for purpose has characterised economic history.

In the provision of money by the sovereign, Europe can boast of a primacy dating back to ancient Greece and the Roman era.  The search for sound money continued in the “dark” years of the High Middle Ages, despite the resumption of bartering; in the eighth century the monetary reform of Charlemagne spread out in many European countries.

The evolution of money over the centuries and across different regions has reflected changes in economic life, in technology, and in societal beliefs and behaviours. When Marco Polo visited China in the 13th century, he was shocked to discover paper money, which we now know had already been used there for centuries. He called its creator a perfect “alchemist”.  Today, digitalisation is spreading to all areas of our life, including the way we pay. So I do not expect anyone to find the idea of a digital currency as astonishing as Marco Polo found the idea of paper money.

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Nowadays, central banks are entrusted with the fundamental task of providing citizens with costless access to simple, secure and risk-free means of payment that can be used on a large scale. Delivering on this task requires central banks to analyse relevant developments in society and adapt accordingly.

In order to be able to give Europeans easy access to a safe form of central bank money in a society that is moving increasingly quickly towards digital payments, the ECB’s Governing Council has decided to advance work on the possible issuance of a digital euro.

Should the need arise, we want to be ready to introduce a digital euro: a form of central bank money that would complement cash, not replace it. Together, these two types of money would be accessible to all, offering greater choice and easier access to ways of paying.

After publishing our report on a digital euro on 2 October, we are now in a phase of listening and experimentation. Our exchange today is a key step in this phase and marks the launch of the ECB’s public consultation.  I will come back to this consultation in a moment. But first I will outline the characteristics of a digital euro, as well as the advantages and the challenges it could present. I will also discuss some scenarios that could require the ECB to issue a digital euro.

What is a digital euro?

We already have an array of choices when it comes to retail payments: central bank money in the form of cash, commercial bank money – for example, digital bank deposits – and non-bank digital money (such as payment cards). What we do not have is a digital currency that is issued by the central bank and that we can use for all our daily transactions, including in e-commerce.

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A digital euro would fill this gap: it would be an electronic form of central bank money accessible to all citizens and firms – in other words, a digital equivalent of euro banknotes. It would provide costless access to a simple, risk-free and trusted digital means of payment, accepted throughout the euro area. In the digital era, it would preserve the public good that the euro provides to European citizens.

Compared with existing means of digital payments, a digital euro would provide added value in several ways. First of all, it could be used for payments anywhere, by anyone and at any time – just like cash in the physical world.

Second, it would bring simplicity: a digital euro should be designed to be easy to understand, easy to use and easy to transfer. Regardless of its features or the technology it would be based on, people from all groups in society should be able to use it in their daily lives. This is because making a payment is about more than just exchanging money for goods and services: it is a form of social interaction made possible by money, which has been described as “the most universal and most efficient system of mutual trust ever devised”.

Finally, a digital euro would increase privacy in digital payments thanks to the involvement of the central bank, which – unlike private suppliers of payment services – has no commercial interests related to consumer data. Ensuring privacy is an essential element of modern democracies and part of our European values. Payments must also respect people’s right to privacy in the digital era, and the design of a digital euro would have to respect this principle. This is a core aspect we will look at – indeed, we have already started exploring possible ways of enhancing privacy.

See:  Central banker bulletin: COVID-19 cash concerns to drive digital currency

At the same time, payments in a digital euro – just like any form of payment – would have to respect the rules on countering money laundering, the financing of terrorism and tax evasion. This would enable public authorities to combat any illegal activity more effectively.

To summarise, the digital euro would still be a euro, only in digital form. It would both shape and promote the digitalisation of payments, while reducing the associated risks. This would in turn support the ongoing digitalisation and modernisation of the European economy.

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