The European Central Bank says it is highly likely that the Eurozone will create the conditions for CBDCs to become legal tender, according to an official who gave a Keynote address in Madrid.
Well of course they will. Central banks are fed up of digital currencies which they can’t control, and as we have previously reported, almost all central banks around the world, from the British to the Nigerian are actively investigating how they can gain control of blockchain enabled currencies, instead of having ordinary people being their own bank.
The likelihood of this outcome was confirmed by European Central Bank board member Fabio Panetta on Tuesday in Helsinki. And on the basis that CBDCs will become legal tender status, this would mean that foreign CBDCs would therefore act as foreign currency.
Panetta said that the ECB cannot just ignore or consider illegal currencies issued by the official central banks of countries and therefore is going to initiate the process of examination of central bank digital currencies in the next couple of years.
The ongoing digitalisation of our economy is leading to far-reaching changes in many areas of our lives. Payments are no exception: innovative forms of private digital money are emerging in response to changing needs, which are transforming how we pay and the payment landscape more broadly.
These developments touch at the core of central banks’ mandates as issuers of sovereign money. And central banks around the world are looking for ways to respond. The ECB is exploring whether to issue a digital euro – a digital form of central bank money for people and businesses to use in retail payments.
It has been argued that such a central bank digital currency (CBDC), if issued, would be redundant given the vast supply of private digital monies available, including bank deposits, credit cards, electronic money and mobile applications, and possible future payment solutions based on stablecoinsFabio Panetta, speech at Elcano Royal Institute, Madrid.
Panetta’s speech goes on to highlight the conditions which need to exist for CBDCs to become legal tender in the European region.
Besides having an intrinsic appeal, a successful digital euro would need to be widely accessible and usable. In other words, while people would find a digital euro attractive because of its unique property as the only riskless digital form of money, they would also need to be able to use it easily wherever they can pay digitally.
Consumers will only use a digital euro if merchants accept it, and merchants will want to be reassured that consumers want to use it. Intermediaries, in turn, will only follow suit if there is compelling evidence that the benefit of distributing it outweighs the cost of doing so. Developing a convincing value proposition for all stakeholders is therefore critical to the digital euro’s success.
This is a key part of the investigation phase of the digital euro project which we started in October. The ECB and the European Commission are together reviewing at the technical level a broad range of policy, legal and design questions emerging from a possible introduction of a digital euro, including the role that legal tender status might play in achieving the desired network effects.
For consumers, the digital euro would offer a cost-free and convenient way to pay digitally anywhere in the euro area. It would also increase privacy in digital payments: as a public and independent institution, the ECB has no interest in monetising users’ payment data and it could only process them to the extent necessary for the functions of the digital euro, in full compliance with public interest objectives and EU legislation. The ECB could use privacy-enhancing techniques while still complying with regulations on anti-money laundering and combating the financing of terrorism.
For payees such as merchants and small businesses, a digital euro would be an additional means to receive customer payments through the instant reception of risk-free money. Moreover, a digital euro could contain the cost of payments through its potential to mitigate the market power of dominant digital payment providers, which already control around 70% of European card payments.
The digital euro should not be seen as a competitor to digital payment services offered by the private sector. Intermediaries could play an integral role in the onboarding and provision of front-end services to ensure a pan-European reach. They would have the opportunity to distribute the safest and most liquid form of money, and could develop new services with “digital euro inside” – such as providing credit facilities to digital euro users or innovative value-added services in the form of automated or conditional payments − thereby generating additional revenues.