ECB Has No Plans to Issue a Cryptocurrency

It seems that the European Central Bank (ECB) is not planning to issue a cryptocurrency or a so called Central Bank Digital Currency (CBDC). The information has been released by the ECB in on September 13 in a Letter sent by Mario Draghi, president of the ECB, to Mr. Jonás Fernández, Member of the European Parliament.

In the letter, Draghi explains that the ECB and the Eurosystem have no plans to issue a CBDC. However, they are carefully analyzing the consequences of taking such a decision as a complement to cash.

Draghi explains that they are closely following the different developments made by other central banks around the world.

According to Draghi, introducing a CBDC could yield both costs and benefits. For example, it could meet demand for both the security and digitization of the economy. With it, it could be possible to reach a wider range of economic actors in a direct way.

With it, the market could have an alternative to bank deposits and have implications for the degree of intermediation and leverage in the banking system. However, the costs and benefits of a CBDC would depend on the specific features of the currency created.

In the letter, the president of the ECB gives some reasons why they do not consider issuing a CBDC in the near future.

He mentioned that blockchain technology stills need to be developed and tested very carefully. Issuing a CBDC with some errors could be catastrophic for the whole economy.

Mr. Draghi explained:

“First, the technologies which could potentially be used to issue a central bank digital currency, such as distributed ledger, have not yet been thoroughly tested and require substantial further development before they could be used in a central bank context.”

Additionally, he says that there is no concrete need in the market to issue a CBDC in the euro area. A the moment, the demand for euro banknotes continues to grow, and cash is a popular means of payment in all over Europe.

Furthermore, he mentions that they are working in a system known as TARGET instant payment settlement (TIPS) that will be working in November 2018 and will allow payments to be settled in central bank money 24/7 on a pan-European absis.

There are several banks around the world that are analyzing the possibility of issuing a Central Bank Digital Currency. The Bank of England has published a paper in which they show three different models for a CBDC.

Norway has also released a document in which they show their intention to develop a virtual currency that could be used as a medium of exchange.

Venezuela has already issued a national cryptocurrency known as Petro, but it did not have a good impact neither in the economy nor in the crypto market. Indeed, the asset was created with the intention to avoid financial restrictions imposed by the United States and other western countries.