An analytical paper published by the European Parliament’s Committee on Economic and Monetary Affairs has made mixed criticism of the digital euro. The title of the document summarizes his position: “Digital Euro: When in Doubt, Abstain (But Be Prepared)”.
The Economist Ignazio Angeloni drafted the document at the request of the parliamentary committee to assess preparations for the launch of a possible digital euro. Angeloni examined ten problems that a “prospective digital euro” (PDE) will face, concentrating on its drawbacks.
Angeloni wrote that a digital euro would put the European Central Bank (ECB) in the position of competing with commercial banks for deposits, but at the same time collaborating with them, since commercial banks would provide front-end services to users of the digital euro, according to an intermediation model:
“This creates potentially adverse incentives and justifies a well-designed compensation structure for the services provided by banks. The ECB reports do not provide information on this.”
The introduction of a digital euro may have a disruptive effect that the ECB is not prepared for, according to Angeloni. The digital currency would have to be attractive enough to find a customer base, but not so attractive that it would undermine the banking system. If the digital euro paid interest, it would have to be managed separately from cash interest rates, which could encourage arbitrage.
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Angeloni concluded with a quote from the Governor of the United States Federal Reserve Board, Christopher Waller, according to which a central bank digital currency (CBDC) is “a solution in search of a problem”. And recommended:
“The ECB should continue its exploration and perhaps also launch the testing phase in October, but it should not really launch a prospective digital euro unless new elements emerge in the future. […] in favor of that measure.”
The ECB will decide in October whether to continue its research on CBDCs with a “realization phase.”
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