The European Central Bank (ECB) has announced that a central bank digital currency (CBDC) is needed in order to contest ‘artificial currencies’ in international payments.
The ECB stated this in its annual report entitled ‘The international role of the euro’, in which economists expressed their concern that ‘foreign tech companies’ are gaining influence with their own digital currencies.
According to the report, it is a worrying scenario for international payments to be dominated by non-domestic providers, including tech companies, which could endanger the stability of the financial system. As stated by an ECB economist, a CBDC could digitise the exchange of information in payment systems through electronic offers, electronic invoices, electronic identities and electronic signatures, which would allow middlemen to offer services at lower costs with higher added value.
The report also sees a digital euro as an instrument for improving the infrastructure of international payments, as a digital euro could make the intermediate trade in foreign currencies redundant in international transactions and drive ‘an expansion of global online trade’. Furthermore, the ECB reports that low transaction costs and bundling effects would make international transactions much more attractive as payment methods.
On the subject of data protection with the CBDC, however, ECB economists point out that fine-tuning is required so that sufficient information can still be obtained to prevent misuse for terrorist financing, international crime and money laundering.