Top officials from the European Central Bank pointed out that unbacked cryptocurrencies are inefficient as a means of payment, and that stablecoins can be vulnerable to rans in a new article arguing for a digital currency. These executives identified key goals for the project, which should give Europeans “easy access to central banks money” in the digital age.
Financial stability is dependent on having access to central bank money, especially with digital payments. According to Christine Lagarde, President of the European Central Bank ( ECBC), Fabio Panetta, a member of its executive boards, the digital Euro can achieve this.
In a blog post published this week by the bank, the high-ranking members of the eurozone’s financial authority have expressed their support for Europe’s central bank digital money ( CBDC). They note that the “successful system for payments” that has lasted many decades is now being challenged.
Stability in the current system is dependent on the backing of public money. But payments are currently undergoing a disruptive transformation. The co-authors explain that people are increasingly paying with digital currency instead of cash. This trend is a result of convenience and potential opportunities but also carries some risks.
Public money’s role as a monetary anchor in Europe could be diminished with a declining use of cash. This would also affect the euro — trust, international importance, and its overall influence. Panetta and Lagarde say that a digital payments ecosystem without strong monetary anchors would lead to confusion over what is money. They also provide an example of cryptocurrencies.
They can’t guarantee one-to-1 currency conversion with central bank money. They are not efficient payment methods, particularly if they do not have any assets backing them. Stablecoins are also vulnerable to rans.
There is also the possibility of some providers dominating the private sector. The large customer base of big tech companies can be used to quickly expand, increasing the risk for market-abusive behaviour. Furthermore, because most of them are not based in the EU, it could lead to non-European players dominating the European payments market, central bankers warn and emphasize.
This means that if we want to maintain a stable and reliable European payment system, we must preserve the central bank’s role in the digital age.
President and board members of the ECB stress that this is the reason why the bank launched the project digital euro a year ago. The introduction of a digital euro version would allow EU citizens to trust the monetary anchor behind digital payments. It is hoped that this will protect the autonomy and efficiency of European payments as well as improve the overall efficiency of the system.
Panetta and Lagarde believe that the digital euro is widely accepted.
Fabio Panetta and Christine Lagarde are both convinced that the digital currency can only succeed if it is a part of everyday life for Europeans. While the CBDC’s investigation phase is expected to take at least another year to determine its specific design, some key principles are clear, they claim.
Users would value ease-of-use, wide acceptance, low costs and high speeds, as well as security and consumer protection. Merchants will seek to integrate the digital euro with other systems and reduce costs. The new European currency should support financial inclusion for those who have limited access to digital payments.
The ECB chiefs insist that privacy must be protected to the highest standards. The ECB chiefs believe that people should have the ability to choose how much information to share, but there is a condition: “so long they comply with the prevailing laws.”
Lagarde and Panetta warn that there are pitfalls. The Union’s financial authorities must ensure that the digital currency is only used for payment and not for investment. They run the risk that too many commercial bank deposits will be transferred to the central bank, which could cause tensions within the banking system.
The bankers recommend that safeguards be established from the beginning. The ECB officials concluded that a digital euro carefully designed will ease the transition of Europe’s economy and society into the digital age, while public financial authorities concentrate their efforts to preserve the integrity of the monetary system and the payment system.