The European Central Bank has warned against this a CBDC or digital euro may be necessary to combat the specter of “artificial currencies” that dominate cross-border payments.
In the annual report of the ECB on the euro entitled “The international role of the euro” Economists Massimo Ferrari and Arnaud Mehl voiced concerns about the rise of artificial currencies run by unidentified “foreign tech giants”, which was likely a disguised reference to Facebook’s Diem project:
“One of the concerns could be a situation where domestic and cross-border payments are dominated by foreign providers, including foreign tech giants who may offer artificial currencies in the future.”
“This could not only jeopardize the stability of the financial system, but also both individuals and traders would be vulnerable to a small number of dominant providers with strong market power“Both added.
The ECB has long been concerned about the rise in stablecoins in Europe and has already asked the EU legislator for a right of veto on private stable projects such as Facebook’s Diem coin.
The ECB has been cautious in introducing a digital euro, and its President, Christine Lagarde, stated in January that “it will take a long time to make sure it’s safe,” adding, “I wouldn’t expect it to be more than five years.”
Ferrari and Mehl’s report on “CBDCs and global currencies” weighed up “different scenarios in which the need to issue a digital euro could become important”..
Economists stressed the need to compete with large technology companies for payment products and services, and indicated that pooling a digital euro with complementary services could be one way of doing this:
“A CBDC could facilitate the digitization of the exchange of information on payments through electronic invoices, electronic receipts, electronic identity and electronic signature, enabling intermediaries to offer services with higher added value and technological content at lower costs.”
According to the message, the introduction of the digital euro may also be needed to improve current cross-border payment infrastructures. The authors note that A digital euro could eliminate the need to use foreign currencies for international transactions and reduce the associated costswhich in turn would “facilitate the expansion of global e-commerce”:
“Low transaction costs and bundling effects could increase its attractiveness for cross-border transaction settlement both as a means of payment and as a unit for processing ongoing transactions.”
The report also stated that the “specific design features of a CBDC would be important to its global reach”, stressing the need to encourage the use of a digital euro through interoperability, user anonymity and the ability to make offline payments.
However, economists stressed that Anonymity would also need to be toned down, as sufficient information about CBDC users is required in order to “take security precautions” and detect any substantial abuses to finance terrorism, cross-border criminal activity and money laundering.