In a letter to the European Parliament on Wednesday, President Mario Draghi stated that the European Central Bank still has “no plans” to issue a central bank digital currency (CBDC). While continuing to closely study developments in the space, Draghi believes that the technologies that would potentially be used to create a CBDC, such as distributed ledgers, have not yet been thoroughly tested and require further development.
“The ECB and the Eurosystem currently have no plans to issue a central bank digital currency,” writes Draghi. “Nonetheless, we are carefully analyzing the potential consequences of issuing such a currency as a complement to cash… Our analyses considers the implications for the transmission of monetary policy, payment systems, financial stability and the economy more broadly.”
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Draghi cites a number of potential benefits for introducing a CBDC, specifically that it could meet the demands for both the security and digitalization of the economy. He also mentions that it could allow monetary policy to reach a wider range of economic actors more directly.
“At the same time, by potentially providing an alternative to some types of bank deposits, a central bank digital currency could have implications for the degree of intermediation and leverage in the banking system, which is important for the role of banks in financing the real economy,” Draghi explains. “The actual costs and benefits would ultimately depend on the specific features of a digital version of a central bank money. The same applies for the possible implications.”
ECB Doesn’t See a Concrete Need for a CBDC
Draghi asserts that the underlying technologies supporting digital currencies require more thorough testing and substantial development before they could be used in a central bank context. The ECB also believes that the need to issue individual accounts for households and companies to supports its digital currency would put it in an inappropriate competition for retail deposits with the banking sector.
The ECB letter concludes by stating that current conditions do not indicate a concrete need to issue a CBDC in the euro area.
“The demand for euro banknotes continues to grow, and cash remains a popular means of payment,” writes Draghi. “Moreover, there is an increasing range of options for digital payments which allow non-cash transactions to be completed almost as immediately as cash transactions.”
The ECB is currently developing further support for fast digital payments through its TARGET instant payment settlement (TIPS) service. Scheduled for release in November 2018, TARGET will allow payments to be settled in central bank money at any time on a pan-European basis.
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