The European Central Bank (ECB) has further outlined its thinking about a retail or general use Central Bank Digital Currency (CBDC). The bank makes strong arguments in favor of a CBDC. It points to the effectiveness of existing solutions such as SEPA but refers to this as “backend” progress. In contrast, a retail CBDC could provide a “front end” solution for the currently fragmented point-of-sale and online payments infrastructure.
Previous statements by an ECB representative stated it was difficult to find a strong motivation for a retail CBDC given the efficiency of current systems and high cash penetration.
The latest issues were set out in a paper for the Economic and Financial Affairs Council (EcoFin), which is part of the EU.
Five key objectives for a CBDC were outlined. These include a pan-European experience, convenience and cost-efficiency, safety and security, European identity and governance, and ultimately global acceptance. The emphasis is on instant payments.
Facebook’s Libra seems to be a trigger as the document refers to stable coins which are untested on a large scale and need to have appropriate oversight and regulation.
The ECB mentioned the high average cash usage across Europe, and it stated if this declined the need for a CBDC might become more urgent.
As with other retail CBDC announcements, the bank says that the impact on monetary policy and the banking sector need to be carefully explored.
Finally, the bank states that it’s important that central bank initiatives don’t discourage or crowd out market-led solutions.
In recent weeks both Germany and France have outlined visions for CBDC both wholesale and retail.
