ICYMI: ECB Panel on Central Bank Digital Currencies. A Digital Euro

It has been widely reported that the European Central Bank (ECB), has selected Amazon (NASDAQ:AMZN) alongside CaixaBank, Worldline AS, Nexi SpA, and EPI, to participate in a prototyping exercise as part of a review of a Central Bank Digital Currency (CBDC) or digital Euro.

The ECB states that the goal of the exercise is to test how well the technology behind a digital euro integrates with prototypes developed by companies. The prototyping will involve simulated transactions using front-end systems developed by these five firms – chosen from a pool of 54 applicants. The exercise is expected to be completed by Q1 2023 at which point the ECB will publish its findings.

By now, it appears to be fairly certain the ECB is heading down a path of issuing a digital Euro, as opposed to enabling private stablecoins to offer digital currencies, or perhaps a hybrid offering where institutional transfers utilize a CBDC and consumers utilize private stablecoins. A presentation from August highlights the questions the ECB is currently addressing regarding the merits of a CBDC.

During a policy panel in Milan, the ECB stated:

“Global stablecoins issued by big tech firms could become dominant and threaten public control over the unit of account (Brunnermeier, James and Landau, 2019). This could inhibit the ability of central banks to conduct monetary policy and act as lender of last resort, and ultimately reduce public welfare. A similar argument can be made for foreign CBDCs.”


“A digital Euro could increase competition by ensuring universal access to an efficient digital means of payment that is not motivated by profit and by allowing intermediaries to offer services on top (digital euro inside). A digital euro would also improve the euro area’s strategic autonomy by reducing reliance on foreign entities.”

The challenge, according to the panel, is that a digital Euro cannot be “too successful” and “crowd out” bank deposits. Why keep your money in a bank where you earn negative interest when it can remain safe at the ECB?

One of the most pressing questions is the issue of privacy. If consumers and businesses use a government-issued digital Euro – every transaction could be available to public officials. A somewhat concerning thought as governments tend to become more intrusive over time, not less.  The ECB does state that a digital Euro must “meet the highest standards” of privacy and users need to be able to control the data they want to share. But then, why would consumers want to share their purchase, transfer, and investment decisions? This is not yet clear.

You may view the presentation from the ECB Panel here.



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