As planned, Europe's digital currency should become a reality in about four years.

“We are on schedule and on budget,” said Christine Lagarde, President of the European Central Bank (ECB) on Tuesday at the Bank for International Settlements (BIS) Innovation Summit.

Lagarde highlighted two developments that have made it clear once again that the digital euro is needed.

Christian Siedenbiedel

Editor in Business.

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One is the boost that digitization took in the corona pandemic.

Within less than five years, the proportion of cashless payments in the euro area has increased by around 40 percent.

In surveys, 50 percent of people now say that they prefer cashless payments.

Just four years ago it was just over 40 percent.

Many people wanted to pay cashless, digitally and over the internet.

"That's the direction it's going," Lagarde said.

She cited this “consumer pressure” as a motive for the development of the new money, which was taking place in several phases.

At the same time, the ECB President emphasized that the central banks should not oversleep the development if they do not want to be left behind by private digital currencies such as “stablecoins”, which are backed by other currencies, or cryptoassets such as Bitcoin.

It is also about the monetary sovereignty of states, i.e. their autonomy and independence in monetary matters, and financial stability, i.e. the solidity of the banking sector.

Digital evasion of sanctions

Lagarde complained that cryptoassets are currently being used very heavily, for example, to circumvent the West's financial sanctions against Russia.

In this context, the exchange of rubles into stablecoins and cryptoassets has reached an exceptionally high level.

Lagarde spoke of "dubious transactions" and warned companies involved in them against "complicity".

The aim of the digital euro is also to secure the sovereignty of the states in this sense.

What is not planned, however, is the elimination of cash through the digital euro.

And it is not intended to create a new monetary policy instrument for the central bank with the digital euro, emphasized Lagarde.

Critics had warned that with the digitization of cash, the central banks could have in mind that it would be easier to enforce negative interest rates across the board - because then people might no longer be able to switch to cash in an emergency.

In this context, Lagarde mentioned the refugees from Ukraine, some of whom came across the border to neighboring countries with bags full of cash.

This also shows a high level of “trust in cash”.

In talks with the European Commission, the President of the ECB is trying to enable at least part of this money to be exchanged from the Ukrainian currency hryvnia for euros.

No sale of data

The ECB President said all surveys showed that people care a lot about privacy protection, even with digital money.

Here she sees opportunities for the central banks to pay more attention to the protection of data and privacy than private currency providers might do.

After all, selling data is not part of the central bank's business model, said Lagarde.

Even if one cannot create a completely anonymous digital euro, because combating money laundering and crime are also important goals, which were also recognized by the citizens in the surveys, one is still working hard on a design of the digital currency that protects privacy.

The ECB President also named the reduction of transaction costs and faster processing of payments as important goals of digital money.

Expenditure by people and businesses on payment services is relatively high, amounting to 1.4 percent of gross domestic product (GDP).

That should be reduced with digital central bank money, said the ECB President.

The digital euro should not have an exchange rate to the normal euro, said Lagarde: "A euro must be a euro." This could be different with private stablecoins - even if they are tied to the euro.

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