The European Central Bank has said in a new report that the digitization of traditional currencies such as the euro has the potential to increase their international appeal. The ECB has warned that failure to offer a digital currency would threaten financial stability. Regulators are concerned about the potential for the tech giant to dominate payments through its “artificial currencies.”
Eurozone Central Bank reviews role of euro in light of CBDC project
The global appeal of fiat currencies depends on economic fundamentals, but some features of the digital currency may promote their adoption beyond the issuing jurisdiction, the European Central Bank (ECB) said.ECB) in a recent review of the international role of the euro. The regulator says that specific design features may encourage non-residents to use the digital euro as a means of payment, unit of account and store of value.
Security is a key feature, the bank explains, will have a claim on a central bank digital currency (CBDC) issuer’s balance sheet and can reduce the risks associated with traditional cross-border transactions that involve correspondent banking.
CBDCs will lower transaction fees, expand access to payment services, and reduce the mark-up of intermediaries. For example, a remittance transfer may be more efficient.
The central bank of the eurozone believes that CBDCs can function partially or fully in countries with weak economies as an alternative to volatile national currencies, a local means of payment, a savings vehicle and eventually accounts. can become a unit of A digital currency will facilitate the use of electronic invoices, receipts, identification and signatures. End users can benefit from access to products that compete with those offered by large tech companies.
ECB worried about dominance of foreign tech giants
The European Central Bank emphasizes that CBDCs will help maintain the autonomy of domestic payment systems. On the other hand, failure on the part of a central bank to offer a digital currency would pose a risk to the stability of the financial system. The authors of the CBDC section of the report, Massimo Ferrari and Arnaud Mehl, caution:
One concern could be a situation in which domestic and cross-border payments are dominated by non-domestic providers, with foreign tech giants potentially offering artificial currencies in the future.
Global social media platform companies like Facebook are working to develop their own native currency, the popularity of which can grow rapidly due to their large customer base. According to the economists, “not only could this threaten the stability of the financial system, but individuals and traders alike would be vulnerable to a small number of major providers with strong market power.” Ferrari and Mehl think that “the ability of central banks to fulfill their monetary policy mandates and role as lenders of last resort will be affected.”
The study, which was published on Wednesday, also explores alternative design options for a digital currency, noting that specific features will determine the global outreach and international role of a currency that has a CBDC denomination. These features include interoperability with non-domestic payment systems, restrictions on use by non-residents, user anonymity, and built-in mechanisms for online as well as offline transfer and settlement.
“The digital euro may contribute to the strengthening of the euro’s global appeal, but will not replace the fundamental forces that define the status of the international currency” such as stable fundamentals, the size of the issuing economy, and the liquidity of financial markets concludes, noting the importance of cooperation with other central banks in the G20 format.
The ECB has not yet launched a digital euro project. the officials first signal That the Governing Council’s decision is expected around mid-2021. Dozens of countries are working to issue CBDCs, including China, the America and Russia.
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