ECB paper marks success factors for CBDCs, digital Euro-Finance
ECB paper marks success factors for CBDCs, digital Euro-Finance
in a paper published by the European Central Bank (ECB), various conditions for the successful introduction of digital central bank currencies (CBDCs) such as your own digital euro of the Eurozone are discussed. The authors also indicate various risks that bring such projects with them, such as the risk of displacement of the private sector.
ECB: Digital euro should be used widespread for payments, not for investments
A successful CBDC , a currency authority must be the digital currency as a widespread payment and exchange Establish the value storage function, according to the paper of the European Central Bank. At the same time, the central banks have to ensure that currencies such as the digital euro Investment funds will displace private payment solutions or undermine the mean role of the banking sector.
The document published this week was written by three high-ranking ECB officials-Fabio Panetta, Ulrich Bindseil and Ignacio Terol. They list the most important success factors for CBDCs and submit their expert opinions on how risks in connection with the digital versions of Fiat currencies can be avoided, the dozens of countries around the world, including great economies, are currently examining or developing.
The paper identifies three conditions for the successful implementation of a CBDC. The first is the "dealer acceptance", which must be wide, which means that users should be able to pay digitally everywhere. In contrast to paper money, fees for each transaction are likely to be incurred in the event of a digital currency and dedicated devices are required for processing the payments. There are also other differences, although both forms of money have the status of a legal means of payment. The ECB explains:
cash is impractical in e-commerce, while the introduction of CBDC as a legal means of payment can require exceptions for dealers that do not have the required device in order to accept cashless payments.
The second success factor was defined as a "efficient distribution". The ECB civil servants cite a Eurosystem report, which is a digital euro of intended intermediaries how banks and regulated payment providers are to be sold. In order to promote the distribution of the digital central bank currency, supervised intermediate incentives can be paid. The document divides placement services into two categories: onboarding and financing services- including the operations that are required for the opening, administration and closure of a CBDC account- and payment services.
"Demand of consumers" is the third success condition that relates to the ability to use the CBDC to "pay everywhere, safely and privately," emphasizes the paper. ECB directorate member Fabio Panetta and his colleagues believe that residents of the euro area can be motivated by the option to use the digital euro for peer-to-peer (P2P) payments outside the range of existing private solutions. Data protection can be another motivational factor, they say and point out that central banks could apply techniques to improve privacy while continuing to combat money laundering. Despite protests against the digital euro, the three experts insist on it in this regard:
As public and independent institutions, central banks have no interest in monetizing the payment data of the users. You would only process this data to the extent that is necessary for the perception of your tasks and in full agreement with the goals of public interest and the legal provisions.
paper suggests measures to avoid CBDC risks
The ECB paper also discusses some of the risks associated with digital central bank currencies, such as excessive CBDC stocks. In it, a number of measures are proposed to prevent a permanent or temporary excessive cash flow into a digital central bank currency, including the introduction of restricted convertibility, which could end the potential drainage of bank deposits into a CBDC. The determination of per capita boundaries with an upper limit for the amount of CBDC could serve as a further obstacle.
The document deals with concerns that the issue of a CBDC trigger a process of the disintermedization of banks and could repress payment solutions that are currently offered by the private sector. In order to avoid this negative effect, it is crucial to find a sufficient range of functions. It should neither be too wide to displace solutions from the private sector, nor is it too tight to limit the use of the digital central bank currency. This could be a challenge for the financial sector, warn the ECB representatives.
The authors of the paper come to the conclusion that CBDCs have clear advantages and that central banks have to follow trends in payment transactions and technology in order to continue to perform their task, to serve both citizens and companies, but still have many questions about the design of a currency and digital euros. In addition to the range of functions, a suitable business model and corresponding controls are required in order to meet the requirements and to ensure robust use of the CBDC.
Do you believe that the European Central Bank will issue a successful digital euro? Share your thoughts on this topic in the comments below.
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