The European Central Bank (ECB) is considering launching a digital currency. With such a CBDC (Central Bank Digital Currency), it would have to be weighed up whether a decentralized or centralized solution would be the better one.
Something is happening in the EU regarding the E-Euro: We must be prepared to implement the technical innovations that will make payment transactions faster than ever before, says Yves Mersch. The Luxembourger is a member of the Executive Board and the Supervisory Board of the European Central Bank (ECB), and in a speech he gave a detailed account of the discussions taking place at the ECB on its own digital currency. Mersch argued that a CBDC (Central Bank Digital Currency) should be made available to all citizens and that an e-euro should not be restricted to institutional participants in the financial markets. Noteworthy: Mersch can well imagine that the E-Euro will be technologically based on a decentralized solution.
What ideas on the E-Euro are circulating at the ECB
Mensch argues decisively for an E-Euro. 80 percent of the world’s central banks would work on CBDCs and so would the ECB. The needs of EU citizens are taken seriously. Cash is still the preferred means of payment in everyday life and in times of the Corona crisis the demand for cash even increases. Mersch believes that an E-Euro should therefore imitate the principle of cash. This includes anonymity, access for everyone and use anywhere and anytime. Mersch believes that an e-euro based on a centralized technological solution would hardly be able to replicate these principles of cash. Moreover, the ECB would then have to be prepared to set up accounts for private customers, take over banking operations, etc.
On the other hand, a decentralized E-Euro, like cash, could counteract social, legal and political disputes. The principle of equality is guaranteed here. In this scenario, the ECB would only issue a decentralised E-Euro and pass it on to the citizens via the commercial banks. Mersch expressly concedes that there are different attitudes within the ECB on this fundamental issue of centralised or decentralised E-Euro. Nor is an E-Euro a decided thing. The European CBDC would only be introduced if it was certain that there was demand for it and that it would allow the ECB to continue to perform its main task, namely to guarantee the stability of the euro.
E-Euro: Mere thought or an early solution for the future?
With the appointment of Christine Lagarde to the helm of the ECB, it was already apparent that the EU’s monetary policy was opening up to the subject of crypto-currencies without prejudice. Mersch’s move suggests that a camp is forming within the ECB that thinks in practical terms. Mersch was president of the central bank of Luxembourg for more than a decade and has held important positions in the ECB and other EU institutions since the 1980s. He is therefore well-connected and would hardly dare go public with his far-reaching ideas if he did not feel support from the ECB’s Executive Board.
A decentrally organised E-Euro as Europe’s CBDC goes beyond what other central banks have in mind. This is because the pilot projects from Sweden to China, which are at different stages of development, are centralised and thus do not consistently replicate the benefits of cash (or Bitcoin). Whether the ECB can finally come up with a basically radical solution that also means a loss of control for it remains open, however. However, Mersch has undoubtedly made an important contribution to the debate.
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