A recent speech by the member of the European Central Bank (ECB) Executive Board Fabio Panetta revealed that the bank is considering using the digital euro for wholesale purposes, especially for payments and securities settlement in Europe.
Insisting that wholesale CBDC has existed for decades, Mr. Panetta said that it has provided efficient digital infrastructures for the settlement of transactions between banks in central bank money. According to him, the central bank is not debating whether to introduce them, but instead discussing how to improve and modernise the CBDC services that it already offers today.
He pointed out that there is a need to modernise CBDC as such efforts are necessary for market participants to remain confident that they can always settle systemically important wholesale liquidity and securities transactions with central bank money.
According to Mr. Panetta, central bank money should remain available for the public to use everywhere in the euro area for their day-to-day transactions – not just in its physical form, but in digital form too.
The main goal of ECB is to ensure that central bank money remains the anchor of stability of the monetary system, stated Mr. Panetta.
More About The Digital Euro Project
With a focus not only on people’s daily transactions, but on the infrastructure that underpins the smooth functioning and stability of the financial system, Mr. Panetta said,“we are also actively working to modernise the payment infrastructure underpinning our financial system.”
“The digitalisation of finance has broadened the available payment options. Fintech start-ups have emerged. Big techs have entered the payments market, capitalising on the networks they operate. The crypto universe has boomed and burst,” he said. “These disruptions show that we need to preserve – at all times – an anchor of stability for the monetary and payments systems. Safeguarding this anchor is what our digital euro project is about.”
However, it was observed that the use of stablecoins could magnify risks such as central bank money having a reduced role in settlement processes, as well as trading and liquidity becoming fragmented . “As we have seen in recent months, stablecoins are prone to runs. In other words, they are stable in name only. And allowing them to be fully backed with central bank money would effectively outsource the provision of central bank money to private entities, endangering monetary sovereignty,” he said.
On the Flipside
- The possibility of people replacing traditional deposits with CBDC continues to pose as a risk to the ECB.
Why You Should Care
The ECB strongly believes that an innovative infrastructure could act as a catalyst for innovation within Europe and beyond, for wholesale CBDC payments. If the execution of the plan is right, the ECB may set a precedent.
Read more about ECB’s efforts with Digital Euro:
The ECB Could Establish a Cap for Digital Euros in Circulation
Know about ECB’s public consultation efforts when it comes to Digital Euro:
ECB Opens Public Consultation on the Issuance of the Digital Euro