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Is the Digital European Currency too late already?

Photo of: Joseph Stone
by Joseph Stone

The European Central Bank will soon present its conclusions on its central bank digital currency (MNBC or CBDC). For Christine Lagarde, Europe must innovate at all costs. Faced with competition on digital currency, it is indeed being outclassed.

Since 2019, the ECB has been conducting technical research on the subject of digital currencies. A PoC (proof of concept) was designed to conduct these experiments. These experiments associate R3 (the blockchain consortium at the origin of Corda) and Accenture.

For the ECB President, Christine Lagarde, there is an urgent need for Europe to arm itself in the global competition for digital payments. She believes that a digital euro would allow the EU to be at the forefront of innovation.

However, to date, it is foreign states and companies that are leading the innovation in this sector. “Europe has fallen behind in this competition,” acknowledged Christine Lagarde, speaking at a conference of the Deutsche Bundesbank.

The European project is making progress, however. In May, a working group was set up to develop a retail CBDC. This differs from a “wholesale” MNBC, since it could be used by individuals for purchases.

“Digital wholesale currency is not new, as banks have been able to access central bank money for decades. But new technologies can be used to make the settlement of financial transactions more efficient. It also opens up the possibility of a retail CBDC, which would be very innovative in that it would be accessible to a broad public” says the ECB President.

However, this digital currency is not intended to replace cash payments. For Lagarde, it would thus act as a complement to cash. Europe must “continue to ensure that all citizens have access to this method of payment” insists Christine Lagarde.

Digital currency and cash combined would therefore promote financial inclusion while offering consumers a choice,” she added. However, no decision on a digital euro has yet been taken.

However, the European working group should soon present the conclusions of its work. These results will not lead to a final decision just yet though. Europe will continue to explore the benefits, risks, and operational challenges of a CBDC, Lagarde said.

“We have a duty to play an active role in balancing the risks and benefits of payments innovation, so that money continues to serve Europeans well,” says Lagarde.

This slow approach has been criticized and many observers believe there is a very real risk Europe will be too late to have a proper impact.