ECB President Christine Lagarde made a speech at the Deutsche Bundesbank online conference on banking and payments in a digital world, in which she discussed digital currencies and a digital euro, among other things.
Lagarde said that there were two trends in global payments, namely:
- changing consumer preferences; and
- the competition to dominate payments globally, something Europe has fallen behind on.
She said that, although this is so far unlikely, should most payments be made using digital wallets, rather than bank deposits, and should they be denominated in private currency with weak links to sovereign currency, then "monetary sovereignty could be weakened". Even in a digital world, consumers should still be able to use sovereign money.
Introducing a public digital currency could be a way to manage digital transformation risks and help maintain trust in payments. She said:
"State backing is essential for there to be trust in payments and money. Money held in bank deposits can be seen as a form of private digital currency, but it is widely used because people trust that they can readily convert their deposits into central bank money. In the euro area, these deposits are also insured by guarantee schemes up to an amount of €100,000, effectively making them public money."
Private digital currencies, on the other hand, would not offer the same kind of convertibility and are unlikely to have state backing. "Without a monetary and regulatory anchor, the stability of payment systems would essentially depend on the safety of private money issuers," she added.
Lagarde also touched on a digital euro, whose potential introduction would put the Eurosystem "at the cutting edge of innovation". Such a move would require three considerations:
- maintaining access to central bank money;
- introducing a digital euro would create risks that need to be accessed; and
- a digital euro should be designed in a way to meet the public's demand for digital payments, "without discouraging or crowding out private payment solutions".