Countries that decide not to introduce digital currencies may face threats to their financial systems and monetary autonomy, the European Central Bank warned.
Consumers and businesses in places that don’t have their own digital currency could end up depending on a small number of dominant payment service providers, including foreign tech giants, the European Central Bank (ECB) said in a report released Wednesday. That could affect the central bank’s ability to fulfill its mandate and act as a bank of last resort, the ECB said.
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“Issuing a central bank digital currency would help maintain the autonomy of national payment systems and the international use of a currency in a digital world,” according to the report.
Central banks around the world are considering the idea of issuing a digital version of their currencies to keep up with the technological advances that have estimated the rise of bitcoin and other private initiatives. The ECB is one of several institutions leading the charge, though it won’t make an official decision until this summer on whether to move forward with practical experiments on a digital euro.
ECB President Christine Lagarde said there could be a digital euro within four years if officials give the project the green light. Such an initiative could also boost the international reach of the euro if designed with a focus on security, low transaction costs and compatibility with other services, according to the ECB report.
“Promoting the international role of the euro is not a primary motivation for issuing a digital euro,” according to the ECB researchers. “However, if the use of a digital euro is allowed in cross-border payments, a decision that remains to be made, this should also have implications for the international role of the euro.”
