The biggest obstacle to a European Central Bank-issued digital currency is not the technology, according to departing European Central Bank President Mario Draghi. Rather, he said, the “key issue is … its utility in terms of costs and benefits to the public.”
In a September 26 letter to a European Parliament member, Draghi became the latest global financial leader to open the door to a central bank digital currency.
His comments came just two weeks after ECB executive board member Benoît Cœuré suggested that the bank should consider launching a digital currency of its own. He was followed in close succession by senior French and German elected officials.
Draghi was more cautious, calling digital currencies “largely untested.” He pointed to risks including financial stability, public trust, and the potential to upset the “smooth functioning of the global payment system.”
At the same time, Draghi said that stablecoin cryptocurrencies are not yet ready for prime time as substitutes for fiat currency, noting that they “are not designed in ways that make them suitable substitutes for money.”
But that could change, he added, citing “the rapid pace of technological development and business model evolution.”
Draghi’s successor is thought to be even more positive when it comes to digital currencies. Christine Lagarde, currently the head of the International Monetary Fund (IMF), has made all the appropriate noises about recognizing risks and threats to financial stability. But, she told the European Parliament on September 3, when it comes to “new technologies—including digital currencies [it is important to recognize] the wider social benefits from innovation and allowing them space to develop.”
As a result, Draghi added, the European System of Central Banks (ESCB) is “analyzing the opportunities and challenges associated with making a digital form of the euro available to the general public.”
The central banks are probably going to have to make some moves on a digital currency within the next two to three years, predicted Mark Cliffe, ING Bank’s chief economist, in a September 27 video blog post. He cited the pressure applied by Libra, which would almost immediately have access to 2.7 billion global users of Facebook’s Messenger, WhatsApp, and Instagram.
Draghi even sounded a less antagonistic note on Facebook’s proposed stablecoin than many of his counterparts. “[N]ew stablecoin arrangements (such as Libra) backed by large technology companies could have the potential for widespread adoption, both for retail and wholesale payments, he said.
Of course, he added, “regulatory and systemic concerns, as well as policy considerations, should be addressed before any such initiatives are implemented.”
Nor does such a digital currency have to be a cryptocurrency, Draghi said. He pointed to the ECB’s existing but back-burnered TARGET Instant Payment Settlement (TIPS) service launched in November 2018. It enables payments “in real time and around the clock, every day of the year,” Draghi noted.