Money and payments are also undergoing rapid change. Innovative tools are emerging. Not so long ago, cash was more or less the only way to make an immediate purchase... now we use private digital money such as online bank transfers, payment cards and applications on our smart phones or watches.
I would like to thank Federcasse for inviting me to speak at this edition of the Lectiones cooperativae. These
lectures are an occasion to reflect on issues of broad significance and
their implications for the application of the principles of
cooperation. They offer us the opportunity to seek a deeper
understanding of the changes taking place in the economy and in society.
The topic of this speech – the present and future of money in the
digital age – has certain unique features. It is an age-old topic,
because we have been talking about money for millennia, from the times
of Ancient Greece and pre-Republican Rome. But at the same time it is a
topical issue, because the digital revolution is transforming the role
and the nature of money.
It is a subject for specialists: economists, lawyers, and technology
experts. Yet it concerns each and every one of us. We all use money in
one form or another – every day, and often several times a day. And we
are all involved in the changes currently under way.
At the international level the digitalisation of money and payments
is being examined by the G7 and the G20. In Europe, it is frequently
discussed by Finance Ministers in the Eurogroup. It is on the agenda of
the European Commission and the European Parliament. It was addressed by
the heads of state or government at the Euro Summit last March. And it
is of course central to the agenda of the European Central Bank (ECB).
This strong focus can be explained by the far-reaching changes that
are under way. Digitalisation is changing the way we work, interact with
each other and use our time. It is changing consumption habits, social
relations, and our very culture. It is, in effect, changing the way we
live.
Money and payments are also undergoing rapid change. Innovative
tools are emerging. Not so long ago, cash was more or less the only way
to make an immediate purchase. Today, however, we have grown accustomed
to using forms of private digital money such as online bank transfers,
payment cards and applications on our smart phones or watches. These are
changes that directly affect the role of central banks.
In October the Eurosystem opened the investigation phase for the
possible introduction of a digital euro: electronic money issued by the
central bank.
If a digital euro were issued, it would have significant
consequences. It would have not only economic and financial
repercussions, for instance as regards the transmission of monetary
policy, financial stability, and the operation of the international
monetary system. It would also have wider relevance for global
geopolitical equilibria and the fundamental rights of individuals, such
as the right to privacy.
In my speech today, I will illustrate the key characteristics and
implications of this new money. And I will then discuss how we can
maximise its benefits and reduce its risks.
The digital euro: what it is (and isn’t)
The digital euro would be a form of sovereign money provided by the
ECB in electronic format. It would be used by anyone – households,
businesses, commercial outlets – to make or receive retail payments
throughout the euro area. It would give citizens the same services they
now obtain from paper banknotes: access to a secure payment instrument
that is cost-free, easy to use and universally accepted within the euro
area.
The digital euro would complement cash, not replace it. It would
provide people with fuller and easier access to electronic payments,
promoting financial inclusion. Unlike cash, it could be used not just
for people to transfer money to each other or for purchases in
commercial outlets, but also for online purchases. And as it would be a
central bank liability, the digital euro would, like banknotes, be free
of any risk, be it market risk, credit risk, or liquidity risk.
Crypto-assets and stablecoins
The digital euro has nothing to do with crypto-assets such as Bitcoin.
As it would be issued by the central bank, the value of the digital
euro would be guaranteed by the State. Crypto-assets, on the other hand,
are not issued by any accountable entity: they are notional instruments
with no intrinsic value, which do not generate income flows (such as
coupons or dividends) or use-value for their owners. They are created
using computing technology and their value cannot be ensured by any
party or guarantee. Crypto-assets are exchanged by operators whose sole
objective is to sell them on at a higher price. They are, in effect, a
bet, a speculative high-risk contract with no supporting fundamentals.
That is why their value fluctuates wildly; hence crypto-assets are not
fit to perform a currency’s three functions: means of payment, store of
value and unit of account.
The value of crypto-assets is growing rapidly and currently stands at over 2,500 billion dollars.
That is a significant figure with the potential to generate risks to
financial stability that shouldn’t be underestimated. For example, it
exceeds the value of the securitised sub-prime mortgages that triggered
the global financial crisis of 2007-2008.
In spite of the substantial sums involved, there is no sign that
crypto-assets have performed, or are performing, socially or
economically useful functions. They are not generally used for retail or
wholesale payments, they do not fund consumption or investment, and
they play no part in combating climate change.
In fact, there is clear evidence that they do the exact opposite:
crypto-assets can cause huge amounts of pollution and damage to the
environment. And they are widely used for criminal and terrorist activities, or to hide income from the eyes of the tax authorities. Moreover, they provide legitimate investors with no protection whatsoever against IT or cyber risks. On the whole, it is difficult to see a justification for the existence of crypto-assets in the financial landscape.
The digital euro also differs from stablecoins....
more at ECB
© ECB - European Central Bank
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article