The European Central Bank (ECB) is entering the age of digital money, as digitalization continues to impact all aspects of society and technology. The COVID-19 pandemic has accelerated the shift towards digital and online payments, leading to a decline in the use of cash. While private digital payment solutions offer convenience and efficiency, they also pose risks in terms of privacy, safety, and accessibility. Central banks, including the ECB, have a responsibility to provide a safe and universally accepted means of payment to citizens. In response to the digital transformation, the ECB has decided to formally launch a project to prepare for the possible issuance of a digital euro. This project follows previous exploratory work and aims to reduce transaction costs, foster financial inclusion, ensure safety and privacy, and encourage innovation. The ECB will engage with stakeholders, conduct focus groups, and work towards developing a digital euro in the next two to three years. The goal is to create a digital currency that adds value for everyone involved and supports European progress while maintaining stability.
Bank of England’s Ongoing Efforts in Central Bank Digital Currency: Insights from Tom Mutton’s Speech
Thank you for the invitation to speak. It is a pleasure to be here. Today, I will be sharing our latest thoughts on Central Bank Digital Currency (CBDC). I will discuss what we have learned so far and how we are preparing for the future. Additionally, I will outline the principles guiding our explorations and our approach to the significant debates surrounding CBDC.
When discussing CBDC, I want to emphasize two key points. Firstly, the Bank of England is highly interested in CBDC, but we have not yet made a decision on its necessity. Secondly, we recognize the importance of cash to many individuals, and we will continue to make it available for as long as it is desired.
For today’s discussion, I will primarily focus on a ‘retail’ CBDC designed for everyday transactions within the UK. However, there are also ‘wholesale’ versions of CBDC proposed for transactions between financial institutions. Furthermore, while today’s focus is on domestic use, CBDC could potentially have applications in cross-border payments.
An Insight into the Bank of England’s Progress on Central Bank Digital Currency: Key Points from Tom Mutton’s Speech
Thank you for the invitation to speak. I am delighted to be here today to discuss Central Bank Digital Currency (CBDC) and share our latest insights. Our work on CBDC entails exploring and understanding its potential implications, as well as establishing a framework for future endeavors. Throughout this exploration, we adhere to certain principles and actively engage in the ongoing debates surrounding CBDC.
Speech by Andrew Bailey on Innovating for the Public Good
I am delighted to be participating in the City UK Annual Conference, where I will be focusing on the theme of innovation and its role in public policy. Specifically, I will be drawing upon our recent work on payments and digital currency, including a significant paper we published last week. As public policy makers, it is crucial for us to establish clear guidelines that innovation must adhere to in order to serve the public interest. While innovation has the power to challenge existing rules and prompt necessary adaptations, it is essential that it does not disregard the public interest entirely. Ignoring the public interest in favor of unchecked innovation is a risky approach that is unlikely to yield positive outcomes. Therefore, it is our responsibility as public policy makers to take the lead in defining these guidelines and remain open-minded about how they can be adjusted to changing circumstances. This necessitates early engagement, which is something we are actively pursuing in the realm of digital currency. It is important to note that playing catch up with public policy is not a recipe for success. Although this process may involve elements of tough love and dashed ambitions, I am confident that it will ultimately foster a robust form of innovation. Furthermore, by outlining the principles of the public interest and demonstrating how they can be implemented in the context of new innovation, we can effectively address the perennial challenge of financial regulation. It is inherent to the nature of innovation that while some ideas succeed, many others fail. In the world of finance, dealing with these failures raises public policy concerns. It is not uncommon for central banks and financial regulators to be accused of being anti-innovation and indifferent to competition due to the messy outcomes that winners and losers experience. However, it is important to clarify that we are not against innovation or competition. Rather, we strive to manage our sphere of influence in order to achieve our public policy objectives as mandated by Parliament and continuously serve the public interest.
Exploring Minimally Invasive Technology in Central Bank Digital Currency Development
Developments inspired by popular cryptocurrency systems often fail to meet the necessary requirements. These systems, while gaining popularity, often lack the necessary scalability, security, and regulatory compliance needed for widespread adoption. Additionally, the decentralized nature of many cryptocurrency systems can lead to challenges in governance and decision-making processes. Furthermore, the volatile nature of cryptocurrencies can pose risks for users, as their value can fluctuate dramatically. As a result, these developments may not be suitable for industries or organizations that require stability, reliability, and adherence to existing regulations. It is important to carefully consider these limitations before implementing cryptocurrency-inspired systems.
Reactions to the Bank of England’s March 2020 Discussion Paper on Central Bank Digital Currency
Paper money has a rich history, with the first widely used paper money being issued in 7th Century China using the bark of mulberry trees. Today, the digitalization of the economy is driven by new technologies, evolving customer preferences, and further innovation. This has led to a decline in the use of banknotes for making payments, as more spending occurs online or through electronic means. The private sector is also exploring new technologies to create novel forms of money, and the Bank of England supports this innovation as long as it is safe and supported by effective regulation and public policy frameworks. Public confidence in money is crucial for monetary and financial stability, and the Bank of England aims to ensure that the money and payment services used by households and businesses are safe, effective, and adaptable to the changing needs of the economy. With the rapid changes in the payments landscape, the public sector, including the Bank of England, is considering its role in retail payments. Central Bank Digital Currency (CBDC) is being explored as a new form of central bank money for making payments. Introducing a CBDC could contribute to a more resilient, innovative, and competitive payment system, but it would also raise significant questions for the economy and financial system. The Bank of England has not yet made a decision on whether to introduce a CBDC, and if it does, it would complement, rather than replace, banknotes.
Bank of England Releases Discussion Paper on Emerging Digital Currency and Reviews Feedback on 2020 Central Bank Digital Currency Discussion Paper
Digital money can be provided by either public or private entities. Central Bank Digital Currency (CBDC) refers to the digital form of money issued by a central bank. On the other hand, stablecoins are digital tokens issued by the private sector with the goal of maintaining a stable value, particularly in relation to existing national currencies. The distinguishing feature of stablecoins is their stability of value, which sets them apart from other digital assets utilizing new technologies.
Exclusive Conversation with Nikkei
Fabio Panetta, Member of the Executive Board of the ECB, discussed the current economic situation in the euro area. While there are signs of improvement, such as the rebound in the second half of the year and the deployment of Next Generation EU funds, the recovery is still incomplete. Euro area GDP is still below its pre-pandemic level and millions of jobs lost during the pandemic have not been recovered. The economy still relies on monetary and fiscal policy support, and a premature withdrawal of policy support could suffocate the recovery. In terms of inflation, there is a transitory increase driven by rising commodity prices and statistical base effects, but underlying inflation remains low. Medium-term inflation is projected to remain subdued and well below the ECB’s 2% target. Panetta emphasized the need to continue policy support until inflation reaches the target. Regarding the possible introduction of a digital euro, Panetta highlighted two main reasons: the decline in cash usage and the need to prevent dominance by non-European players. A digital euro would protect privacy, increase consumer choice, and support the digitalization of the economy while ensuring sovereign money remains at the core of the financial system. Panetta also addressed the potential impact on the existing banking system and the need for restrictions or disincentives to prevent financial instability. The timeline for the introduction of a digital euro is uncertain, with a minimum of five years and the earliest possible date being 2026. The ECB wants to ensure that if a digital euro is issued, it is done correctly and does not generate instability.
Is Public Funding Necessary? – Address by Jon Cunliffe
Today, I would like to discuss the concept of ‘public money’ and whether it is necessary. When referring to public money, I am specifically addressing the form of money issued by the state for everyday use, rather than public spending. This may initially appear as an unusual question, considering that in the UK, the Bank of England, a public institution, has been issuing money to the public for over three centuries. The banknotes, which bear the well-known “I promise to pay the bearer” pledge, are widely circulated and utilized by the public on a daily basis for various transactions. These notes and coins represent the currency of the UK, known as Pounds Sterling. It is the responsibility of the Bank of England, acting on behalf of the state, to ensure the stable value of the currency by maintaining inflation at its targeted rate of 2%.
Will Emerging Technologies Make Banks Irrelevant? Exploring Fintech, Bigtech, and Cryptocurrencies with Ida Wolden Bache
Even though there is only one cryptocurrency currently in the private sector, individuals who earn income in cryptocurrency are still required to pay taxes. The tax regulations regarding cryptocurrencies can vary from country to country, but generally, any income earned from cryptocurrency, such as through mining or trading, is subject to taxation. It is important for individuals to accurately report their cryptocurrency income and comply with the tax laws of their respective jurisdictions. Failure to do so can result in penalties and legal consequences. Therefore, it is crucial for cryptocurrency earners to stay informed about the tax obligations associated with their income.