The European Central Bank’s (ECB) Governing Council has started the investigative phase of a digital euro project, which might lead to the issuing of a central bank digital currency (CBDC) in the Eurozone. Following the release of an exploratory report on the conclusions of an ECB digital euro task force in October 2020, as well as other successful experiments, the announcement was made.
The central bank will launch a two-year research process on Wednesday, during which time it will try to build a viable CBDC architecture while also addressing questions about its impact on monetary policy, financial stability, and illegal activity. It will also assess whether or not changes to the European Union’s legislative framework are required.
“It’s been nine months since our research on a digital euro was released. In that time, we have undertaken more analyses, sought input from citizens and professionals, and conducted certain tests, all of which have shown positive results,” said ECB President Christine Lagarde. “As a result of all of this, we have decided to step up a gear and begin the digital euro project.”
The impact of a digital euro on the European and worldwide economies would be significant. With nearly 26 billion euro banknotes in circulation as of May 2021, the euro is the second most traded currency behind the US dollar. It is the official currency of 19 of the EU’s 27 countries. Nonetheless, the ECB stated that a digital euro would complement rather than replace cash.
Nonetheless, global competitiveness is increasing. The Sand Dollar, the Bahamas’ first CBDC, was released in 2020. Furthermore, the People’s Bank of China has been working on a digital yuan since 2014 and is currently running one of the world’s most advanced programs. The country is already conducting real-world experiments, with 10 million people becoming eligible to participate in retail digital yuan trials earlier this week.
Lagarde, like central bankers and officials in the United States, has not been compelled to be the first large economy to launch a CBDC, but she clearly sees one as the way forward for Europe’s payments system.
“Our effort strives to ensure that citizens and businesses have access to the safest form of money, central bank money, in the digital age,” Lagarde said.