The president of the European Central Bank, Christine Lagarde, has suggested that the Euro Zone's central bankers are close to making a decision on whether to press ahead with the development of a central bank digital currency (CBDC).
Lagarde's comments came in a speech given to Germany's Bundesbank's conference on banking and payments in the digital world where she argued that the EU cannot afford to be left behind in the development of digital payment methods.
The pandemic has accelerated the "transition to a digital new normal" while competition to dominate payments on a global scale has led to the dominance of a small number of large players. "Europe has fallen behind in this competition," said Lagarde, highlighting the lack of payments integration within Europe as another barrier to progress.
However Lagarde also argued that digital payments bring new risks that must be taken into account. These include the potential disruption of the payments market by big tech firms such as Facebook which is developing its Libra payment project. Such developments could in turn lead to a weakening of operational resilience and more difficulty in tracking illicit activity.
And while Lagarde said that introducing a digital euro would "allow the Eurosystem to be at the cutting edge of innovation", there needs to be a thorough examination of the associated risk.
“The Eurosystem has so far not made a decision on whether to introduce a digital euro. But, like many other central banks around the world, we are exploring the benefits, risks and operational challenges of doing so,” Lagarde said.
“The findings of a Eurosystem task force are expected to be presented to the public in the coming weeks, followed by the launch of a public consultation.”
The ECB president added that three considerations will be central to the decision-making - maintaining access to central bank money and banknotes; managing the risk of a rapid transition of bank deposits to a digital euro; and ensuring that a CBDC does not adversely affect competition.
Her views were echoed by the Bank of France governor Francois Villeroy de Galhai during a panel discussion at the same event. He said that Europe faces "urgent and strategic choices" and "cannot allow ourselves to lag behind on CBDC".