Tag: the european central bank

Bank of Spain Plans to Look at Design Proposals and Economic Implications of a CBDC

Banco de España, Spain’s central bank, published its strategic plan that outlines its goals over the next four years. According to the plan, besides examining the European Central Bank’s trends and policies within the Spanish economy, Spain’s central bank would study different design proposals and evaluate the economic implications, including the systematic and financial risk of a central bank digital currency (CBDC) in the country.  

The Bank of Spain would also conduct research on the impact of negative interest rates on banks, coronavirus-related challenges on markets, and many other areas on CBDC efforts.

The Research Not Much on CBDC Issuance

However, this does not imply that the Bank of Spain has plans to issue its own Central Bank Digital Currency. While the plan does not focus so much on the potential CBDC efforts, it says that CBDC research is a priority under the theme of “New Technologies and Information Sources.” The plan says:

“The implications for the financial system and the economy as a whole of the introduction of a central bank digital currency will be analyzed, considering various design proposals and including aspects relating to digital identification.”

Such “priority” research would start this year and conduct through the end of 2021.

Pablo Hernández de Cos, the current governor of Spain’s Central Bank, stated: “Regardless of its importance, expanding access to a Central Bank’s balance sheet by making a CBDC available to households & non-financial corporations is only one of many ways in which tech innovation may help enhance the monetary & payment system.”

Spain and the Euro

As a member of the eurozone, Spain does not have to issue its own CBDC. The country has been using the euro since 2020. The European Central Bank is currently considering issuing a CBDC through committee work, which includes Spanish central bankers.

Juan Ayuso Huertas, Director General of Spain’s Central Bank, is adequately active in the research of a digital euro. He is a member of the High-Level Task Force on Central Bank Digital Currency that facilitated the production of the digital euro report.  

Under the leadership of the current European Central Bank (ECB) president, Christine Lagarde, the ECB has been actively researching on a CBDC. The ECB recently published a detailed report regarding the potential impact of a digital euro and has unveiled consultations with the public regarding the implications of a digital euro. The future of the work concerning the issuance of a digital euro would be determined in mid-2021.    

The ECB Warns Financial Stability Risks If Central Banks Fails to Issue Digital Currencies

The European Central Bank (ECB) has published a report highlighting the euro’s international role and talks about the significance of CBDCs for future financial stability, Bloomberg reported Wednesday.

In the report published on Wednesday, June 2, the ECB warned countries to pay attention to the rising risks of their monetary autonomy and financial systems if their central banks decide not to issue a digital version of their fiat currencies.  

The report stated that the issuance of a CBDC would assist in maintaining the autonomy of domestic payment systems and the global use of a currency in a digital world.

The report also said that businesses and consumers in regions that do not have their digital currency could end up relying on a small number of dominant payment-service providers, including foreign tech giants such as PayPal, Square, and others. The ECB further mentioned that it could affect central banks’ ability to fulfil their mandates and act as a lender of last resort.

The ECB is one of many central banks considering the idea of issuing a digital version of their fiat currencies. The ECB has not decided to launch a digital euro until this summer to determine whether it will move forward with practical experimentations on a digital euro. 

Christine Lagarde, the President of ECB, stated that introducing a digital euro could occur within the next four years if officials give the green light. The initiative could help expand the euro’s international reach if it is designed to focus on low transaction costs, safety, and compatibility with other services, the report said.

The report stated that if ECB officials approve the use of a digital euro in cross-border payments, this would also impact the euro’s international role.

CBDCs As the Next Big Disruptive Force

Traditional banks view CBDCs as the next big financial disruptor. Led by nations like China, Bahamas, and Cambodia, the digital version of fiat currency draws closer to the future of an increasingly cashless society.

The US Federal Reserve is taking a cautious approach though it has a CBDC project with MIT.

The fears of losing control over the supply of money and payment systems of cryptocurrencies like Bitcoin or even the planned Facebook-backed stablecoin Diem push Central banks to accelerate to launch CBDCs.

CBDCs would resemble cryptocurrencies in some limited aspects but differ in significant ways.

The CBDCs would function more like dollars and have widespread acceptance, including assisting people without banking access to the financial system. Potential losers from the CBDCs include some financial institutions, both in fintech and traditional banking, that could lose deposits due to people putting their funds into central banks accounts.

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