ECB’s Push Towards a Central Bank Digital Currency
ECB’s Push Towards a Central Bank Digital Currency

ECB’s Push Towards a Central Bank Digital Currency

By Harriet Palmer - 19 Apr 2020

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Various governments across the world are starting to jump on the cryptocurrency trading bandwagon by creating a central bank digital currency (CBDC) for their respective States and it seems that European Central Bank (ECB) is pushing for it.

After experiencing a slump that caused its prices to drop from EUR 6,950 to EUR 3,537 overnight, Bitcoin continues to regain the confidence of investors by moving in a positive direction.

In fact, some traders from TradingView even predicted that the price of Bitcoin will skyrocket to EUR 8,637 by the end of April. Considering that the highly anticipated halving is just around the corner, investors and traders can expect the price of Bitcoin to follow an upward trend in the months to come. 

With FXCM explaining how easy it is to open a trading account – with newbies only needing to fill out an application form – it’s no surprise that many are taking this opportunity to get into crypto trading.

Many speculate that this newfound interest for central bank digital currencies is primarily due to recent global events, which have driven all of us into unique situations. A great example of a state whose interest in digital currency seemed to balloon in the face of the global pandemic is the US. 

US officials have already drafted two emergency economic stimulus bills to jumpstart the government’s initiative to create a CBDC, which will be called eThaler and released under Ethereum. 

The European Central Bank (ECB) also has similar plans when it comes to CBDCs. Earlier this year, the president of ECB, Christine Lagarde, expressed her support of the bank’s active participation in the development of a CBDC which, she believes, will address the demand for faster and cheaper cross-border payments. 

Aside from assessing the costs and benefits of issuing a CBDC, the ECB also formed an expert task force to work closely with national central banks to determine the feasibility of a Euro-area CBDC. 

In his speech at the Reinventing Bretton Woods Committee conference ‘Managing the Soft Landing of the Global Economy’ last year, Vitas Vasiliauskas, Chairman of the Board of the Bank of Lithuania and a member of the Governing Council of the ECB enumerated some of the benefits of CBDCs. 

These benefits include more efficient payments and security settlements, better transmission of monetary policies, reduced counterparty credit and liquidity risks and stronger deposit and lending rates.

Of course, adopting a CBDC also has its disadvantages. Based on the comprehensive working paper released by the ECB, Forbes suggests that one of the potential problems is the lack of attention placed on privacy or anonymity because of the concerns over money laundering. 

The ECB’s plan to utilise large digitisation-oriented corporations as third-party providers will call into question the amount of data they will hold over the entire populace. Another problem would be the tiered use of digital currency that will present CBDC as an effective means of exchange and but not as a store of value. 

This setup effectively renders CBDC as a band-aid solution to the underlying system’s structural problems and the inefficiencies of paper banknotes. 

Recent events have led multiple countries and regions to consider the integration of digital currency into their financial systems. In the case of the ECB, although various efforts are already in place, there is still a long way to go before the bank can release a CBDC of its own.

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