Countries that decide not to introduce digital versions of their currencies may face threats to their financial systems and monetary autonomy, the European Central Bank warned.
Consumers and businesses in places that don’t have their own digital currency could end up being reliant on a small number of dominant payment-service providers, including foreign tech giants, the ECB said in a report published Wednesday. That could affect the central bank’s ability to fulfill its mandate and act as a lender of last resort, the ECB said.
Digital Ambitions
“Issuing a central bank digital currency would help to maintain the autonomy of domestic payment systems and the international use of a currency in a digital world,” according to the report.
Central banks across the globe are toying with the idea of issuing a digital version of their currencies to keep up with technological advances that have spurred the rise of Bitcoin and other private initiatives. The ECB is one of several institutions leading the charge, though it won’t officially decide until this summer whether it will move forward with practical experiments on a digital euro.
ECB President Christine Lagarde has said that a digital euro could exist within the next four years if officials give the project the green light. Such an initiative could also boost the euro’s international reach if it is designed with a focus on safety, low transaction costs and compatibility with other services, according to the ECB’s report.
“Fostering the international role of the euro is not a prime motivation for issuing a digital euro,” according to the ECB researchers. “However, if the use of a digital euro in cross-border payments were allowed – a decision that remains to be taken – this would also have implications for the international role of the euro.”