The Executive Council of the European Central Bank (ECB) is expanding its efforts to evaluate blockchain technology; the new effort will focus on the concept of a Digital Euro (DEUR), a hypothetical cryptocurrency and the monetary policy implications of its use. In a recent speech to the Central Banking Institute, an in-house training organization for central bankers, ECB vice president Benoît Cœuré discussed the new effort, saying that ECB officials will work to determine if a DEUR would “bring a material advantage with respect to the performance and capacity of the payments system” and if it would “fit into the framework of the central bank’s monetary policy strategy.” Cœuré also noted that the DEUR could be issued in parallel
“We are in a process of evaluating [the ECB’s digital eur] proposal,” ECB Vice President Vitor Constancio said in a speech in Amsterdam today, Reuters reports. (Constancio made similar comments in mid-January.) The vice president didn’t give a timeframe, however, for when the bank intends to make a decision on the program, based on distributed ledger technology, which has been in the works for more than two years. Of note, Constancio also discussed central bank digital currency (CBDC) on a panel with Dutch Finance Minister Wopke Hoekstra, who has been pushing to replace cash with digital money..
Faced with challenges on many fronts, the European Central Bank is currently deepening its analysis of how its currency can be digitised. A senior central bank official has confirmed that a decision on the issuance of the digital euro, which could become a major CBDC, is expected to be taken around mid-2021.
Euro area central bank to decide on digital euro project in a few months
Engrossed in planning a tentative way out of the social, economic and health emergency imposed on the European Union by the Covid 19 crisis, the ECB has also been forced to consider a digital version of the euro, the fiat currency of the European Monetary Union. The Federal Reserve will unveil prototypes of the digital dollar in July, the Facebook-backed dime dollar will launch later this year, and China has already invited its citizens to apply for a digital yuan wallet.
ECB Vice President Luis de Guindos
In this regard, the eurozone central bank is now intensifying its efforts to thoroughly study the possibility of issuing its own digital currency, ECB Vice President Luis de Guindos told reporters. He also confirmed that the Bank’s Governing Council will decide in mid-2021 whether to launch a project to introduce the digital euro. Speaking to the Italian newspaper La Repubblica, the official said:
We are currently focusing on deepening our analysis of how the digital euro works and what it looks like for the benefit of European citizens and our economy.
According to an English translation of an interview published by the ECB this week, de Guindos also noted that central banks around the world played a key role in managing the coronavirus pandemic and that we need to make sure we are also well prepared for any future challenges on all fronts.
It’s not an option, we have to do it
In a previous interview with Público, the former Spanish economy minister maintained that the digital euro is not a reaction to cryptocurrencies. The main reason, he says, is that digitalisation is becoming increasingly important and the pandemic is accelerating. For us the digital euro is not an option, it is something we just have to do. This is not trivial in terms of the potential impact on financial stability and monetary policy, so we need to calibrate this project to minimize the potential negative impact, Luis de Guindos stressed.
Other challenges facing the ECB also stem from the fact that Europe is recovering more slowly from the pandemic. The EU lags behind the UK, Israel and the US, where vaccination is being accelerated and socio-economic conditions are starting to improve. The bank’s vice president describes the current situation on the Old Continent as bittersweet.
The first quarter was weaker than we expected three months ago. On the other hand, vaccination coverage is increasing in Europe. This is good news because it will have a significant impact on the economy….. I hope that by early summer we will be in a much better situation, de Guindos predicted. He added that estimates now point to growth of around 4%, based on positive expectations for the second half of the year.
The negative impact of the Covid crisis varies significantly across participating countries. The fall in GDP last year varied widely, from 4-5% in the Scandinavian countries to 11% in Spain. Other countries, such as Italy, have experienced sharp increases in public debt. The number of non-performing loans is expected to increase during the year and inflation could exceed 2%. Luis de Guindos hinted that the ECB could consider a gradual end to the monetary emergency, but he also rejected the idea of reducing public debt and the possibility of raising interest rates.
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