Central Bank Digital Currencies (CBDCs) have continued to rule the crypto news cycle, with various governments and jurisdictions exploring the potential of digitizing their currencies. Joining the ranks appears to be the European Central Bank (ECB), in a move that could bring significant ramifications for the entire Eurozone.
The Urgent Need for Better Digital Payments
Earlier this week, Christine Lagarde, the President of the ECB, appeared at an online conference hosted by Deutsche Bundesbank. In a session focused on banking and possible digital payments, she confirmed that the agency is looking towards a possible CBDC and should reveal findings soon.
Lagarde pointed out that a digital euro will bring the European economic bloc to the forefront of financial innovation — an aspect where it appears to have lagged in recent years. The French policymaker pointed out that a lack of payment integration in Europe had caused the region to fall behind in digital innovation, thus allowing countries like China to lead the space.
To remedy this, the ECB is considering a possible retail CBDC that will help bridge this gap and improve innovation markedly. Lagarde pointed out as well that the ECB has seen significant signs that Europe is ready for a potential CBDC. She pointed out that the continent has made massive strides in accepting digital payments, as e-commerce sales had surged by about 20 percent between February and June.
The policymaker also signaled that the coronavirus pandemic had forced many to focus more on digital payments. “The pandemic has served as a catalyst, accelerating the transition towards a digital new normal. A vast majority of consumers expect to continue to use digital services as often as they do now or even more often,” she said.
Lagarde further backed her point by highlighting that the volume of online payments across the Eurozone has increased by double digits since the outbreak began. Interestingly, a separate statistic from the European Union highlights that retail trade volumes have dropped by 1.2 percent in the same period. Still, the ECB is committed to developing a CBDC to meet the demand for faster and more efficient online payment methods.
Retail Applications to Take Priority
Lagarde also gave some details about the potential CBDC, explaining that it would focus primarily on retail applications. She added that it would not act as a substitute for cash, as central banks across the continent will have a mandate to still make banknotes available to citizens.
Ending, she pointed out that any iteration of a CBDC will need to meet public demand for more effective digital payments and not affect the current private payment solutions available.
Interestingly, she didn’t speak on how possible CBDCs within the continent would fit into the ECB’s plans. Several countries within the European Union — including and especially France — have begun developing CBDCs. If every country is free to create its version of CBDCs and the region sees a proliferation of these assets, agencies like the ECB could be left unable to deal with the fallout.