ECB Flags Risks for Central Banks Without Their Own CBDCs

There is a risk of losing monetary sovereignty if large tech firms launch their own digital currencies and regulators lack versions of them. This conclusion is contained in the ECB report on the international role of the euro.

In the ECB’s section on national digital currencies (CBDCs), the regulator flagged potential threats to financial stability and vulnerabilities in the private sector. They may arise when external players, including tech giants, start to dominate domestic and cross-border payments.

“The ability of central banks to fulfil their monetary policy mandate and the role of lender of last resort will be called into question”, the document says.

While the ECB fears global stablecoins, experts see risks for commercial banks in the digital euro.

“A CBDC will strengthen the central bank’s role in the banking system at the expense of private banks. Any incentives will lead to higher inflation, as the ability to dampen the money supply’s penetration into the economy will be limited”, as explained in an interview with Deсrypt, Peter Klepp, an analyst at the Property Rights Alliance.

In February, the ECB said it intended to obtain the right to veto the launch of stablecoins similar to Diem.

In May 2020, the regulator examined three scenarios for using Facebook’s digital currency. Analysts estimated that the amount of funds directed toward the global version of the stablecoin could range from €152.7 billion to €2.93 trillion.

Earlier, ECB President Christine Lagarde said that the issuance of a CBDC, subject to policymakers’ approval, could occur in four years.

In May 2021, the Diem project announced plans to launch in the United States, with a focus solely on the American market.

In February, Amazon announced a developer recruitment drive for its digital currency project.

Subscribe to ForkLog’s news on Telegram: ForkLog Feed — all the news, ForkLog — the most important news, infographics and opinions