The European Central Bank (ECB) wants to play an active role in the field of digital currency, said President Christine Lagarde. As the bank works on its own digital currency and an instant payment system, Lagarde emphasizes that “central bank initiatives should neither discourage nor crowd out private market-led solutions for fast and efficient retail payments in the euro area.”
ECB Wants Active Role
The president of the European Central Bank, Christine Lagarde, outlined in an interview with “Challenges” magazine the bank’s progress in the area of digital currency, the ECB announced on Jan. 8. Responding to a question of whether “creating a cryptocurrency [is] a legitimate task for the ECB,” Lagarde noted that “Innovation in the area of payments is racing ahead in response to the urgent demand for quicker and cheaper payments, especially cross-border ones,” adding:
The Eurosystem in general and the ECB, in particular, want to play an active role in this field, rather than just acting as observers of a changing world.
She proceeded to talk about TIPS (TARGET Instant Payment System), a market infrastructure service to provide pan-European instant payments with direct settlement in central bank money. Launched by the Eurosystem in November 2018, this system “enables banks to process payments between themselves in a matter of seconds, 24 hours a day, 365 days a year, all over Europe,” she claims. While TIPS currently only settles payment transfers in euros, other currencies could be supported if there is demand, the ECB website details.
EBC’s Work on Central Bank Digital Currency
Lagarde also told Challenges magazine about the ECB’s work on central bank digital currencies. “In terms of the road ahead, the ECB will continue to assess the costs and benefits of issuing a central bank digital currency (CBDC) that would ensure that the general public remains able to use central bank money even if the use of physical cash eventually declines,” she said, emphasizing:
The prospect of central bank initiatives should neither discourage nor crowd out private market-led solutions for fast and efficient retail payments in the euro area.
“We are looking closely into the feasibility and merits of a CBDC, also because it could have major implications for the financial sector and for the transmission of monetary policy,” the ECB president opined. She further noted that the central bank created “an expert task force” at the end of 2019 to work closely with national central banks “to study the feasibility of a euro area CBDC in various forms, covering all the practical aspects, including how to minimise possible unintended side-effects.”
At her first press conference as head of the ECB in December, Lagarde outlined her plans to lead the ECB ahead of the curve in the field of digital currency, expecting progress by mid-2020. She said at the time that “There is clearly a demand out there that we have to respond to,” referring to stablecoins. The ECB then published a report showcasing its blockchain technology proof of concept, which features a digital chain with the ability to issue “anonymity vouchers.”
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