HomeCBDCDigital Euro UpdatesThe Argument for Central Bank Digital Currencies by the ECB

The Argument for Central Bank Digital Currencies by the ECB

In a blog post, Fabio Panetta, a member of the Executive Board of the European Central Bank (ECB), discusses the potential decline of cash in a digital economy. As people increasingly prefer digital payments and online shopping, the use of cash in payments is decreasing. In fact, half of consumers in the euro area now prefer cashless means of payment. If this trend continues, cash could lose its pivotal role. This poses implications for the key role of central bank money in payments. While central bank money is currently used for consumer transactions in the form of cash and for wholesale transactions in the form of electronic deposits, the rise of digitalization and new technologies challenges the role of cash. To maintain its role as the anchor of the monetary system, central bank money needs to adapt to evolving needs. This is where central bank digital currencies (CBDCs) come into play. The ECB is focused on developing a digital euro, which would allow everyone to use central bank money for digital retail payments. Some argue that CBDCs would be redundant given the availability of private digital means of payment. However, Panetta believes that the smooth functioning of payments, critical for monetary and financial stability, depends on sovereign money continuing to play its anchoring role in the digital era. Confidence in private money is based on its ability to be converted into central bank money, the safest form of money. Without central bank money as an undisputed monetary anchor, the singleness of the currency would be undermined, potentially leading to crises. The primary objective of a digital euro would be to ensure that public money remains widely accessible and usable for daily transactions. Additionally, Panetta discusses the challenge of wholesale CBDCs and the need to continually assess and upgrade the services offered for the settlement of wholesale transactions. By ensuring that central bank money remains the anchor of the payment system, financial stability and trust in the currency can be supported, preserving the transmission of monetary policy and protecting the value of money.

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