EU could move step closer to digital euro this October, Lagarde says

Quick Take

  • The European Union’s central bank could advance further down the path of creating a digital euro later this year, though widespread issuance of an EU central bank digital currency does not appear imminent.

The European Central Bank plans to make a decision on the creation of a digital euro by the end of October, ECB President Christine Lagarde said on Wednesday.

But in the next breath, Lagarde told a public central bank forum hosted by the ECB in Sintra, Portugal that widespread adoption of a digital euro is not on the near-term horizon, if it happens. The ECB president described her central bank’s stance on the CBDC as “accelerated” but cautioned that “we have not decided for sure.”

After an ECB governing council meeting at the end of October, “there will be another phase of piloting, experimenting, fine tuning because if and when we go, as will be decided by the governing council at large, we want to get it right.

The ECB president focused her CBDC remarks on preserving the value of the euro. 

“You’ve got to be ready. You want to keep the sovereignty of your currency,” said Lagarde.

The EU adopted a broad legislative framework for digital assets, a law called Markets in Crypto-Assets, earlier this year, but is only at the beginning of a lengthy rulemaking process for that law. Policymakers have stated part of the impetus for that law was the Libra/Diem stablecoin project, backed in part by Facebook.

Preserving the value of the euro

LaGarde characterized the project as reacting to what European citizens want, and preserving the value of the euro, which plays a central part in the transnational governing body. The U.S. central bank, the Federal Reserve, and the UK's central bank, the Bank of England, have also examined possible adoption of central bank-issued digital currencies. But Fed leaders have cautioned that a decision on a digital dollar is years away from happening, while acknowledging concerns that a CBDC could pose risks to privacy and the financial sector, including in congressional testimony by Fed Chair Jerome Powell last week.

During the same panel where Lagarde made her remarks, BoE Governor Andrew Bailey said that wholesale digital money, transfers made between financial institutions using digital currency, "could be a complete revolution in infrastructure, financial markets, and trade finance."

The New York Fed, one of the central bank's regional branches, has also experimented with wholesale payments between financial institutions using digital currencies on private blockchains. The Fed also plans to launch its real-time payments network, which uses more traditional payment rails than digital currencies or blockchains, in July.

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