Key Takeaways:
- ECB publishes a warning to governments in relation to CBDC and the tech progress
- Governments that fail to introduce digital currencies risk losing monetary autonomy
ECB With a Stark Warning to Governments
The European Central Bank is warning governments in a recent report. ECB said that governments who do not introduce central bank digital currencies run the risk of losing monetary autonomy. The ECB came out with a report that contains this stark warning in the wake of technology breakthroughs and a looming cryptocurrency market.
According to the report named “The International Role of the Euro, June 2021”, central banks should seriously consider launching a digital version of their respective sovereign currencies. If they fail to do so, it could result in weakening their currencies’ role in the financial system. “Issuing a CBDC would help to maintain the autonomy of domestic payment systems and the international use of a currency in a digital world,” the report says.
Big Tech Seen as a Threat to the Financial System
The document also talks about the possibility that big tech companies could soon introduce their own digital currencies. On that note, governments having their own CBDCs could be an adequate step toward preserving the monetary autonomy.
“Attention should be paid to the risks to stability that might arise if a central bank does not offer a digital currency,” the report warns. “One concern could be a situation in which domestic and cross-border payments are dominated by non-domestic providers, including foreign tech giants potentially offering artificial currencies in the future.”
The Characteristics of a CBDC
A central bank digital currency (CBDC) is essentially a digital version of a fiat currency. A CBDC moves in lockstep with the underlying sovereign currency. This means they are always one and the same value.
So if the central bank currency falls or rises in value, the same rate of movement is equally represented in the CBDC. A central bank digital currency is similar to a private stablecoin, which is pegged at a 1:1 ratio with the underlying fiat currency.
Earlier this year, the ECB went to the public in search of information on its view on digital currencies. The aim of the survey was to hear Europeans’ take on a digital euro. As it turned out, the public is widely in favor of a digital version of the EU currency.