The European Central Bank has warned its 27 member states that failing to issue a digital currency could weaken the euro and even cause the EU to lose control of its monetary policy. The report, titled The International Role of the Euro, urges members to pay attention to “the risks to stability that might arise if a central bank does not offer a digital currency.” While noting prominently that a currency’s global appeal relies mostly on “fundamental economic forces, which digitalization is unlikely to alter,” the report focused in on the threat that private digital currencies issued by “foreign tech giants” — Facebook’s Libra/Diem project was not actually mentioned by name, but was certainly there in spirit — could come to dominate both domestic and cross-border payments.
The report came just days after U.S. Federal Reserve Governor Lael Brainard said much the same thing, warning of “a risk that the widespread use of private monies for consumer payments could fragment parts of the U.S. payment system in ways that impose burdens and raise costs for households and businesses.” The ECB report said that a private digital currency could “threaten the stability of the financial system” the report issued by ECB President Christine Lagarde noted that “individuals and merchants alike would be vulnerable to a small number of dominant providers with strong market power.” Beyond that, the report said that without a digital euro, “the ability of central banks to fulfill their monetary policy mandate and role as lender of last resort would be affected.” Which was, you might recall, the first main argument central bankers and financial regulators made when Facebook announced plans for a private, global stablecoin. “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 added.
Anonymity or AnNOnymity?
One issue that could affect the global acceptance and influence of a digital euro is the anonymity — or trackability — that it provides users, the report noted. Predictably, it suggested that trade-offs between protecting privacy and public safety would be necessary. Among the suggestions were limiting the amount of a digital euro that non-citizens could use, either in a lump sum or over time. But, it added that could limit a European central bank digital currency’s usefulness as a means of making cross-border payments, as well as its attractiveness internationally. China, which has suggested that trackability will be built into a digital yuan, is far ahead of any other major economic power in issuing a central bank digital currency.