Europe Central Bank Will Focus On “Game Changer” Retail CBDC

Speaking at a virtual conference about the future of money, European Central Bank (ECB) executive board member Yves Mersch said a retail central bank digital currency (CBDC) is a game-changer.

“A wholesale CBDC, restricted to a limited group of financial counterparties, would be largely business as usual,” Mersch said in the opening speech on Monday, May 11, at Consensus: Distributed. “However, a retail CBDC, accessible to all, would be a game-changer, so a retail CBDC is now our main focus.”

He referenced a survey by the Bank for International Settlements that showed 80% of the 66 central banks polled are working on CBDCs. The ECB is among them, but not because it follows “fashionable trends.” It’s because they want to be prepared.

“We have to be ready. Ready to embrace financial technological innovation which has the potential to transform payments and money faster, and in more disruptive ways, than ever before,” he said.

He pointed out that cash is still the favored payment method and he hasn’t seen any indication that people are going to give it up. Electronic payments are replacing cash in some countries  but “there is no such trend away from cash in the euro area.”

Some 76% of all transactions in the euro area are in cash, accounting for over 50% of the total value of all payments. In March, banknote circulation reached a peak of nearly €19 billion (US$20.55 billion).

“The ECB’s debate on CBDCs is therefore mainly analytical. Whether and when it becomes more of a policy debate will largely depend on the preferences of households,” he said on the first day of the five-day conference.  

Although there is not a solid “business case” for a CBDC right now, that won’t stop the ECB “from seriously exploring the optimal design of a CBDC so that we will be well prepared should we ever take a policy decision to issue a digital currency.” 

He said a retail CBDC based on coins “would circulate in a decentralized manner” that would be anonymous to the ECB, “similar to cash.” Another alternative would be a retail CBDC based on ECB deposit accounts.

Mersch pointed out that central banks are focused on wholesale CBDCs because retail could rattle the entire global financial system.

The Consensus: Distributed conference runs May 11-15 with over 13,000 people and more than 100 sessions carried out online. The event was supposed to happen in New York, but the coronavirus pandemic moved the conference online for the first time.

In January, the Bank of England stated some central banks — including the ECB — were planning to collaborate as a group to determine how CBDCs should be approached. 

A statement by the Bank of England at the time said joint efforts will look into “economic, functional and technical design choices, including cross-border interoperability; and the sharing of knowledge on emerging technologies.” The group of banks were to “closely coordinate with the relevant institutions and forums — in particular, the Financial Stability Board and the Committee on Payments and Market Infrastructures.”

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