The European Union is urging the European Central Bank to consider issuing its own digital currency. This was reported yesterday by the Reuters news agency, claiming to have seen a draft document detailing this suggestion, representing a move contrary to the tide of suspicion in which central banks and financial institutions tend to hold cryptocurrency. The move could be interpreted as a response to the perceived threats from Facebook Libra, and also with an eye to the rise of central bank digital currencies, at the forefront of which is the People’s Bank of China. The EU draft document is set to be discussed by EU Finance Ministers this week and the recommended measures possibly adopted in mid-December. As cited by Reuters, the draft document says:
“The ECB and other EU central banks could usefully explore the opportunities as well as challenges of issuing central bank digital currencies including by considering concrete steps to this effect.”
While research by central banks into developing their own cryptocurrencies is not new, China is the first major county closest to developing its own digital currency. Central banks have for some years now been exploring the benefits of digital currencies, which include making payment systems more efficient, reducing transfer and settlement times and providing a boost for economic growth. Although the volatility associated with Bitcoin and other virtual currencies have presented less of a threat to central banks, Facebook’s stablecoin Libra proposal represents a mass take-up of a virtual currency which could pose a real threat to the central banks’ sovereignty over monetary policy. It is designed to allow users to make and receive payments through Facebook, Messenger and WhatsApp, all of which are used by billions of people worldwide. Concern has also been expressed over money laundering, data privacy and customer protection issues. Central bank digital currency, on the other hand, could both address current inefficiencies in payment and settlement systems while also retaining the control that states exert over their own money.
A recent report conducted by IBM and the Official Monetary and Financial Institutions Forum points to 73% of the leading global banks have claimed at some point that central bank digital currencies will be available in the future, replacing cash. The study, “Retail CBDCs: The Next Payment Frontier” researched data from over 20 economies worldwide concluding that: “Central banks are responding to the reality that digital currencies, either privately or publicly issued, will soon be part of the global monetary system, and that it is in their interest to ensure they are neither left behind or are displaced.” (cit in ccn.com)
To date, the EU has not exerted bloc-wide regulations over cryptocurrency, although individual jurisdictions such as Gibraltar and Malta within the EU have developed their own individual regulations. However, since it was announced by Facebook, Libra has elicited strong opposition from financial regulators in US and Europe, with the UK’s Digital, Culture, Media and Sport Committee Chair, Damian Collins, stating that Libra represents Facebook’s attempt to turn itself in to its own country. As reported in Fintech.gi, several of the payment firms that Facebook worked with to develop Libra, such as Paypal, Mastercard and Visa, have since dropped out of the project. Facebook Libra still under pressure
With China’s definitive response to Libra being the development of its own central bank digital currency, and now the EU’s own move, it is expected an increasing number of central banks will do likewise.