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The European Central Bank With Seven Scenarios For Issuing Digital Euro

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Aeon Flux
Published on:
7 October 2020
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No Strict Deadlines Are Set Yet And CBDC Will Be Deployed “When The Need For It Arises”

The European Central Bank (ECB) published a 50-page report on the possible usage of digital euro in the form of a central bank-issued digital currency (CBDC), which puts the European Union’s monetary policymaker into the frontlines of governmental structures, considering CBDCs as a viable option.

The report was prepared by the High-Level Task Force on Central Bank Digital Currency (HLTF-CBDC), which runs under the aegis of the Governing Council of the European Central Bank. The document implies that the usage of CBDC would be a complement to, rather than a direct substitute for fiat euro.

One of the leading figures in the Task Force, ECB Chairman Fabio Panetta, noted that the bank is working closely with EU members central banks to pinpoint any issues around deploying a digital euro.

“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,” Panetta highlighted.

Meanwhile, the comprehensive document proposed seven scenarios about the future use of CBDCs, if such need arises. The ECB highlighted five EU-specific and two broader objectives for the issuance of a digital euro. The new digital euro has to be able to enhance digital efficiency and provide cash-like and competitive features. The requirements also include the use of digital euro as a monetary policy option; the CBDC should serve as a back-up system; and it should be cost-effective, environmentally friendly, and able to be used internationally.

The possible scenarios about a future CBDC launch include an increase in electronic payments, a decline in fiat usage, third parties entering the crypto payment industry, as well as the issuance of CBDCs by other national banks.

The report also shows that two design approaches are taken into consideration. The first approach would process all digital euro transactions on ECB’s custom digital ledger. In the second design approach, the ECB would develop rules for transaction processing, which can be done via supervised third parties.

If the ECB decides to go on its own ledger, it would allow deposits to be made directly with the ECB. However, depositing may be only available for commercial lenders, governments, and other central banks.

The report also considers “whether a digital euro should be accessible to households and businesses directly or indirectly through intermediaries, whether it would be remunerated and whether the digital euro holdings of individual users should be limited.”

Meanwhile, the ECB announced the start of public consultations, starting October 12. The aim is to “listen to the views of the public and interested stakeholders.”

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