The European Central Bank (ECB) released a digital currency report today. The report warned sternly that governments that stop implementing central bank digital currencies (CBDCs) could face threats to their financial systems and monetary autonomy.
What is a Central Bank Digital Currency (CBDC)?
CBDCs are digital versions of fiat currencies. When we look at the European Union, it is known that it will appear as a digital version of the euro. These coins are similar to stablecoins that are pegged at a 1:1 ratio to a fiat currency.
The report, titled “The Euro’s International Role in June 2021,” states that the risk of not launching a CBDC stems from concerns of “foreign tech giants potentially offering artificial currencies in the future.”
The report was not named, but is thought to imply the Diem Association, of which the ECB is Facebook’s main backer. Last month, the project said that a pilot version of the digital currency was on the way.
“The ability of central banks to fulfill their monetary policy mandate and their role as lender of last resort will be affected,” the report states.
Digital euro could threaten private banks
While the ECB sees a potential threat from big tech, private banks are equally threatened by the digital euro, said Pieter Cleppe, EU Policy Analyst at the Property Rights Alliance (PRA) and former Brussels Head of think tank Open Europe.
Cleppe told Decrypt:
“The digital euro will strengthen the role of the ECB in the banking system at the expense of private banks. Any monetary expansion will lead to much faster inflation. Because private banks will no longer prevent all that money from flowing into the real economy.”
Many governments are keenly interested in launching CBDCs because digital currencies make it easier to analyze financial transactions and distribute money more cheaply in times of crisis.
Here’s what Cleppe says about it:
“Just like China’s digital yuan, the ECB’s digital euro is ultimately for following users. However, this goes against the fundamental spirit of cryptocurrencies, which is essentially trying to free money from government control.”
Unlike cryptocurrencies, CBDCs are not typically intended to be on a decentralized blockchain as the central bank will seek to maintain clear authority over the ledgers. But the ECB has not yet decided on the technology choice.