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ECB takes major step toward introducing a digital Euro

ECB takes major step toward introducing a digital Euro

A central-bank digital currency would allow euro-area residents to place deposits with the ECB directly

The European Central Bank will start experimenting with a digital version of the euro while holding a public consultation in a major step toward introducing the technology.

“Our role is to secure trust in money,” president Christine Lagarde said as the ECB published a study into the benefits and drawbacks of a digital currency. “This means making sure the euro is fit for the digital age. We should be prepared to issue a digital euro, should the need arise.”

The consultation will start October 12, and the experiment will be held in parallel. The ECB said it will decide toward mid-2021 whether to launch a digital euro project, which would start with an “investigation phase.”

Cryptocurrencies such as Bitcoin, while regularly criticised by central bankers as little more than speculative assets, have nevertheless spurred a close look at how payment technologies are developing.

A central-bank digital currency would allow euro-area residents to place deposits with the ECB directly. That’s typically only an option for commercial lenders, governments and other central banks.

That has implications for monetary policy and financial stability. The ECB report urged a look at “whether a digital euro should be accessible by households and firms directly or indirectly through intermediaries, whether it would be remunerated, and whether digital euro holdings of individual users should be limited.”

A digital euro “is becoming an obligation which, indeed, central banks – in this case the ECB – need to carry out,” ECB vice president Luis de Guindos said in an online discuss.

Central bank digital currencies explained

  • They’re electronic versions of legal tender, available either directly to consumers or via banks
  • They are based on a technology called blockchain that aims to keep transactions secure
  • They can improve access to legal tender in countries where cash use is dwindling, while also facilitating faster and cheaper cross-border payments
  • A key challenge is to ensure the commercial banking system doesn’t suffer because people move their deposits to the perceived safety of the central bank

In a sign that the ECB is serious about laying the groundwork for a digital euro, it recently applied to trademark the term “digital euro,” according to the website of the European Union Intellectual Property Office.

An ECB spokesman confirmed the filing.

Central banks across the world have experimented with digital versions of their currencies, and ECB officials have recently stressed the need to stay on top of the technological trends.

The People’s Bank of China is likely to be the first major institution of its kind to issue a digital version of its currency after advanced commercial tests.

Other central banks like the US Federal Reserve and the Bank of England are discussing possibilities around digital currencies but have few plans to act so far.

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