ECB Must Prepare to Issue a Digital Euro, Panetta Says

The European Central Bank must prepare to issue a digital euro to complement banknotes “if and when” it becomes necessary, ECB board member Fabio Panetta said on Friday.
Major central banks are studying the creation of officially sanctioned digital currencies to address demand for electronic means of payment and fend off competition from bitcoin and other crypto tokens, Euronews reported.
In a study published on Friday, ECB said a digital euro could help in scenarios where citizens abandoned cash, foreign forms of electronic money took over, or other means of payments became unavailable.
“We should be ready to issue a digital euro if and when developments around us make it necessary,” Panetta said in a blogpost accompanying the study. “This means that we already need to be preparing for it.”
ECB gave itself until the middle of next year to decide whether to go forward with the project, which is now open for public consultation.
A main concern is that this form of money might displace traditional deposits, hollowing out commercial banks and crowding out private solutions.
In the study, ECB said deposits in digital euros would probably be capped and subject at least in part to ECB’s interest rate on deposits, currently minus 0.5%.
They would ideally be offered by the private sector, rather than ECB itself, it said.
Sweden’s Riksbank has been testing its e-krona for months and the People’s Bank of China is also running a trial on a ride-hailing platform.
But cash use is still prevalent in Germany and other eurozone countries, meaning a prospective central bank digital currency (CBDC) may have less appeal in the eurozone.
The US Federal Reserve, the Bank of Japan and the Bank of England have all struck a cautious tone regarding the possible introduction of CBDCs.