The upcoming two-year European Central Bank (ECB) investigation into a digital euro is not an assurance that the bank will issue a central bank digital currency (CBDC), according to an ECB official.
Speaking during a panel discussion at Bitkom’s first Digital Euro Summit on Wednesday, Jürgen Schaaf, advisor to the senior management of the Market Infrastructure and Payments business area of the ECB, said that the bank will experiment with a digital euro and use insights from this investigation as input for a decision on whether or not to actually create a CBDC.
“This is still not a decision to introduce or issue a digital euro. After these phases, we will have to assess properly whether the potential benefits outweigh the possible disadvantages and then take a profound decision,” Schaaf said.
Meanwhile, China is forging ahead with its digital yuan: In August, the digital yuan was used in the domestic futures market for the first time following multiple other test runs. According to the Atlantic Council, in May 2020, only 35 countries were considering a CBDC, while now, at least 80 nations are exploring a CBDC, representing 95% of the global gross domestic product (GDP).
The ECB, which had been discussing the potential launch of a digital euro since the beginning of the year, is set to launch its much-anticipated experiment into a CBDC in October. The project follows comments made last year by ECB President Christine Lagarde that Europe had fallen behind in the global digital payments race.
“We are actually not the slowest,” Schaaf said.
Schaaf explained that the ECB cannot be compared to the central bank of the Bahamas, which was the first financial institution to issue a CBDC, the Sand Dollar, in 2020. He also cautioned against drastic nationwide experimentation like that of El Salvador. El Salvador’s president Nayib Bukele kicked off a legislative process in June to make bitcoin legal tender in the country, and now it is an official currency in the Central American nation.
“Money and [the] provision of money is something you don’t play with. We cannot do huge scale experiments that rock the whole society and system. So whatever we’re going to provide, if we provide it, has to be really sound and safe,” Schaaf said.
Retail vs. wholesale
During the panel discussion, Schaaf said the upcoming ECB experiment is focused on a retail digital euro (one that individual users can use to purchase goods and services) as opposed to a wholesale euro only for banks and financial institutions.
“We see this digital Europe project as provision of a retail payment instrument … The current setup is more focused on retail that’s embedded in the mandate,” Schaaf said, referring to the ECB mandate to safeguard price stability and ensure a digital euro is not disruptive.
He also added that a layer investigating a wholesale CBDC might be added to the experiment at a later stage.
Digital euro drivers
Schaaf said that the digitization of payments and other services, the declining use of cash and the risk that foreign players might introduce a more influential currency are driving the ECB’s own investigations into a digital euro.
“So there is a concern that the monetary stability of the euro area is a bit at stake when there could be a crowding out by big techs,” Schaaf said.
He also reiterated that a digital euro will not replace cash but will complement it, acknowledging that cash usage has been declining over the last few years, exacerbated by the pandemic.
“Having said that, we will not stop issuing and providing cash, the digital euro, when it comes, would be a compliment not a substitute for cash,” Schaaf said.