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Consensus 2020: European Central Bank is working on a retail central bank digital currency as part of an investigative task force

The European Central Bank is stepping up its analytical investigations into the potential for creating a central-bank backed digital currency for retail customers. This is the move which would be “a game-changer” for the banking industry.

consensus-2020-european-central-bank-is-working-on-a-retail-central-bank-digital-currency-as-part-of-an-investigative-task-force

The ECB official outlined that the bank is mainly focused on a retail implementation of CBDC

Consensus 2020, has officially kicked off in virtual mode. Consensus: Distributed, Coindesk’s first-ever fully virtual conference, featured European Central Bank (ECB) key legal official, Yves Mersch, as the first speaker.

On May 11, ECB board member Mersch delivered an exclusive keynote devoted to central bank digital currencies (CBDC), a central bank digital currency that can be used by consumers. Speaking at 6:45 a.m. ET, the ECB official outlined that the bank is mainly focused on a retail implementation of CBDC.

The central bank currently has a task force working through the implications of CBDC.

Yves Mersch, who also serves as vice-chair of the ECB’s Supervisory Board, stated:

“A wholesale CBDC, restricted to a limited group of financial counterparties, would be largely business as usual. However, a retail CBDC, accessible to all, would be a game-changer. So a retail CBDC is now our main focus.”

ECB’s Supervisory Board,

Yves Mersch, Member of the ECB’s Executive Board

The creation of a retail CBDC would need to address the currency’s legal tender status and the relationship between a CBDC and euro banknotes and coins, along with the process by which one could be exchanged for the other.

Mersch describes two different ways to design a CBDC – operating either as a decentralized digital token or based on deposit accounts lodged with the central bank.

Of the former, he said:

“We are currently looking into the legal questions raised by the potential use of intermediaries to facilitate the circulation of a CBDC and also the processing of transactions in a CBDC. To what extent are we permitted to outsource public law tasks to private entities? And what would be the appropriate extent of supervision over such entities?”

The latter approach raises serious policy questions relating to the potential disintermediation of commercial banks, and the possibility of digital bank runs, as consumers cash out their accounts in favor of a central bank-issued currency.

Mersch asked:

“What, then, could be done to mitigate the impact of a CBDC on the financial system?”

Mersch highlighted that central banks are focused on wholesale CBDCs due to risks of shaking the entire global financial system:

“You may wonder why central banks have not chosen to provide retail access to central bank money despite access to technology so far. The main reason is that introducing a retail CBDC could have major consequences for the whole financial system.”

Despite outlining the ECB’s focus on working closely on CBDC implementation, Mersch still noted that CBDC adoption largely depends on preferences by people. As such, the ECB official emphasized that cash remains one of the most popular payment methods in Europe.

For the moment, the ECB’s investigation is purely analytical, Mersch stresses but adds:

“If and when the time comes, we want to be ready – and we will be ready.”

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