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Our practices are changing – in some countries rapidly so. Not long ago, cash was the only way to pay instantly. It is still the dominant payment method for small amounts. But the trend is towards cashless, contactless payments. We are increasingly making purchases using tap-and-go cards, an app on our phone or even a smartwatch.
As the guardians and issuers of their currencies, central banks around the world are inevitably asking themselves whether they should issue a digital currency. Should they devise an electronic form of money which is also legal tender, which commands the same degree of trust and which offers all the benefits of money in its traditional form? In the euro area, should we issue a digital euro alongside euro banknotes? We already have digital means of payment, such as electronic transfers. And, of course, we have physical central bank money in the form of cash. What we do not have is a digital currency that is issued by the central bank and that we can all use in daily life. In other words, we do not have a digital equivalent of euro banknotes.
Whether or not we need a digital euro is a fundamental and pressing question, and the ECB and the national central banks of the euro area are considering it together. We are publishing a report today on our assessment of the economic, strategic, technological and societal choices that we face. It will form the basis of a public consultation that we will launch on 12 October to hear the views of the public and interested stakeholders.
The report concludes that we should be ready to issue a digital euro if and when developments around us make it necessary. This means that we already need to be preparing for it. In the coming months, we will listen and experiment so that we are in a position to take a fully informed decision on the possible development and launch of a digital euro.
A digital euro would aim to preserve the public good that the euro provides to citizens: costless access to a simple, universally accepted, risk-free, trusted means of payment. Issuing a digital euro may become necessary in a variety of scenarios: think of situations where people no longer prefer paying with cash, or extreme events – such as natural disasters or pandemics – where other payment services no longer function. A digital euro would also protect us from the potential for a public or private digital means of payment, issued and controlled from outside the euro area, to largely displace existing means of payment, which could raise regulatory concerns and threaten financial stability or even our monetary and financial sovereignty.
A digital euro would complement cash, not replace it. Together, they would offer people greater choice and easier access to means of payment. This would help financial inclusion. A digital euro would also be a symbol of Europe’s willingness to embrace change and lead from the front, supporting the digitalisation of the European economy. It would promote innovation in retail payments, synergising with the new payment solutions that citizens and businesses need to prosper in innovative digital markets. It would make the euro more attractive to people living outside the euro area, thus increasing its global appeal and the strength of Europe’s financial system. Finally, it would allow to more effectively combat illegal activities, such as money laundering and the financing of terrorism.
The introduction of a digital euro also poses challenges. Some of these challenges are related to people’s individual rights, such as the right to privacy. We will have to resolve these issues when we develop functional and technological designs. Other challenges are economic in nature. For example, some people fear that a digital euro could hamper the activity of banks or generate instability in times of financial stress. But a properly designed digital euro could address these risks.
To face these challenges we must keep in mind that the value of money – in both traditional and digital forms – is rooted in citizens’ trust. Acceptance by the public is crucial. We therefore want to listen to people and learn about their needs, preferences and concerns with regard to a digital euro. The input we receive both in the public consultation and in discussions with Europeans’ elected representatives will guide our future work. We will test concrete options through experiments, in cooperation with all stakeholders. And we will liaise with the relevant institutions and authorities as we assess the legal, economic and financial requirements of a digital euro.
The euro has done well so far, providing a currency that Europeans trust. We need to make sure that our currency is fit for the future. Inaction is not an option.
This blog post first appeared as an opinion piece in: Die Welt, Le Figaro, Corriere della Sera, El Mundo, Financieele Dagblad, Kathimerini, Phileleftheros, Le Soir, Die Presse and Politico.eu on 2 October 2020.