The European Central Bank (ECB) has said that it could one day issue its own digital currency if the private sector fails to make cross-border payments faster and cheaper.
“If industry efforts fall short of developing an innovative and efficient pan-European payment solution, the social need for it could potentially be met by issuing a CBDC [central bank digital currency], said the ECB in a paper published Wednesday.
It added that a CBDC with the status of legal tender could “guarantee that all users have, in principle, access to a cheap and easy means of payment.”
As a result, the ECB will continue to explore the benefits of digital currency and be ready to act should the need arise in the future to issue one. “Signs of a future decline in cash usage could be a catalyst in accelerating central bank efforts in the area of CBDC,” it said.
At the same time, the central bank wants private companies to continue exploring and building solutions for more efficient retail payments in the euro area. “The ECB fully supports market-based initiatives that are working towards a pan-European payment solution for point-of-sale and online payments,” it said.
Europe is also looking to taper off US players’ dominance in the region’s payments space. Just last week, ECB’s outgoing board member Benoit Coeure said that Europe must overcome its dependence on international payment providers, such as Visa, MasterCard, Amazon, Apple, and PayPal - all of them based in the U.S. “Europe is at risk of losing its economic edge. Country-specific solutions lack the necessary size and scale, and national fragmentation has paralyzed competition and stifled innovation on the pan-European level,” Coeure said.
European Commission vice president Valdis Dombrovskis also said at the time that his team is planning to launch a pan-European instant payment system by the end of 2021. Europe already has an instant payment system called TIPS [Target Instant Payment Settlement], but banks have reportedly been slow to join and it has not had a significant impact so far. The Association of German Banks, a lobby group of more than 200 private commercial banks, also recently called for digital euro and a common pan-European payments platform.
The U.S. has also been working to make its payments systems more efficient. The Federal Reserve Bank recently announced its plans to develop a new "round-the-clock real-time" payment and settlement system, with a hopeful launch date in 2023 or 2024. The Fed is also evaluating the benefits of issuing a digital dollar, but has "not identified potential material benefits of [a] general purpose CBDC to the implementation of monetary policy relative to our existing tools."
China, on the other hand, is almost ready to launch its national digital currency after five years of research and development. Just yesterday, governor of France’s central bank, François Villeroy de Galhau, said that the bank will start testing digital currency soon and "will launch a call for projects before the end of the first quarter of 2020."
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