• Panetta of the ECB argues that a digital Euro is on the way. In favor of

  • The ECB favors the adoption of a digital euro. The vision’s details were revealed by Fabio Panetta, a member of the European Central Bank’s executive board (ECB).The possibility of a European CBDC for retail payments was discussed by the central bank at the beginning of the year and was placed in a 24-month “investigate phase” in July.

    Panetta began by emphasizing how the digitalization of the economy is changing our lives, needs, “how we pay, and the payment landscape.” As a result, many central banks desire that sovereign money become more accessible and flexible in this new era.

    Private banks have previously deemed CBDCs obsolete “given the vast supply of private digital monies available,” but Panetta contends that central banks must “evolve alongside changing technologies, payment habits, and financial ecosystems” and has portrayed the role of central bank money as a monetary anchor.

    Panetta asserts that central bank money is “the safest form of money in the economy” and “the only money whose face value is intrinsically guaranteed,” and that convertibility is the ultimate reason users trust and use private intermediaries.

    Central bank money, by acting as a monetary anchor, helps to maintain a well-functioning payment system, financial stability, and, ultimately, trust in the currency. This, in turn, is a prerequisite for maintaining the transmission of monetary policy and, as a result, protecting the value of money.

    During the pandemic, cash has lost favor in Europe. Nowadays, approximately half of all European consumers prefer non-cash payment methods.

    Just as the postage stamp lost much of its utility with the advent of the internet and email, cash may also lose relevance in an increasingly digital economy.

    Panetta stated that cash is used as a store of value, with only about 20% being used in transactions. Because its decline would weaken the central bank’s money’s anchor role, the ECB devised a strategy to adapt to the digital economy.

    The digital euro was described by an ECB member as “a digital form of central bank money for people and businesses to use in retail payments.”

    The Digital Euro Roadmap

    The digital euro is the ECB’s attempt to restore permanence to its currency, ensuring that it remains a useful “monetary anchor.”

    Some have also suggested that innovative private payment solutions, such as stablecoins, could render CBDCs obsolete if properly regulated. (…) This, however, would imply outsourcing the provision of central bank money to stablecoin issuers, risking a corresponding loss of monetary sovereignty.

    The ECB intends to find an efficient way for a digital euro to be widely used, while also providing stability and an appealing design for ease of use and avoiding the risk of bank runs. It has no plans to compete with payment services provided by the private sector.

    Panetta proposed that intermediaries distribute “the safest and most liquid form of money” and use it to develop new services, such as credit facilities, in order to generate additional revenue.

    Regarding privacy, the proposal states that “the ECB has no interest in monetizing users’ payment data and could only process them to the extent necessary for the functions of the digital euro, in full compliance with public interest objectives and EU legislation.”

    They intend to broaden the euro’s “international use and Europe’s autonomy in global payments,” and claim it will be accessible to non-Europeans by making it “interoperable with other CBDCs” at lower costs and faster speeds.

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