The European Central Bank said on Wednesday that the creation of a digital euro could make it easier to pay or save money, boosting the currency’s international status. While this could be risky, the financial system and monetary autonomy would be threatened if digital currencies were not introduced.
The European Commission has set a target of increasing the use of the euro outside the euro zone, but efforts to expand the currency have been stalled for years and slowed slightly in 2020 due to the COVID19 pandemic.
The European Commission wants to reverse that trend, with the euro accounting for just under 22 percent of global foreign exchange reserves last year, compared with 59 percent for the dollar.
The European Central Bank says a digital euro could make it more attractive, but the health and size of the eurozone economy are more important. “Security, low transaction costs and bundling effects can contribute to the international introduction of a currency.” This was announced by ECB.
However, opening up the digital euro to foreigners also carries risks, such as opening the door to money laundering or promoting a run on weak currencies in times of crisis. In response, the ECB said these issues could be addressed in the design of digital currencies, such as setting an upper limit on how much each citizen can own digital currencies or forcing disclosure of information about their holdings.
In regions without their own digital currencies, their consumers and businesses could end up relying on a few market-dominating payment service providers, including foreign tech giants, which could affect central banks’ ability to live up to their responsibilities and act as lenders of last resort, the report says.
According to the report, the Eurosystem has yet to decide whether to proceed with the digital euro project and, if so, whether it is possible to use digital euros in cross-border payments.
The ECB has long been concerned about the rise of artificial or stablecoins in Europe, and previously asked EU lawmakers to give veto power to private stabilisation projects such as Facebook’s DIEM coin.
This not only threatens the stability of the financial system; individuals and companies will also be vulnerable to the impact of some of the leading suppliers who have strong market forces. “The introduction of digital money by the central bank would help to maintain the national ownership of the payment system as well as the international use of money in the digital world,” the ECB said.
The ECB has yet to formally decide whether to introduce a digital euro and is not expected to do so for four or five years. Christine Legarde, president of the European Central Bank, said in March that the introduction of a digital euro would take at least four years, if at all.