Many of those who expected the European Central Bank (ECB) to follow China’s model would be disappointed to hear that the financial institution has no plans to launch a native Digital Currency Central Bank [CBDC]. The official publication claimed that there were several reasons why the CBDC was not needed at this time and provided guidance on the future of the industry.
On May 11, ECB board member Yves Mersch stated that there was no business case for the ECB to launch its own CBDC. He opined that there were bigger concerns in the financial world with the impact of the coronavirus being felt on a daily basis. Proponents of a digital banking future were given a ray of hope when Merch added that the bank would follow up with the industry and work towards it if the need occurred.
Mersch made his comments at a virtual conference where he also touched on the different requirements that the CBDC will have to meet. In his words:
“The lack of a concrete ‘business case’ for a CBDC (Central Bank Digital Currency) at present should and does not stop us from seriously exploring the optimal design of a CBDC so that we will be well prepared should we ever take (that) policy decision.”
He went on to state that much of the money released by central banks are already in digital form. The only difference was that they weren’t CBDCs connected to the virtual asset world. According to him, access to the central bank balance sheet offers access to digital central bank money. Merch confirmed that the ECB was experimenting with the concept of a retail CBDC and would reveal details if and when they were finalized.
The EBC official also talked about the legal and security aspects of the implementation of the CBDC. There are several reasons against the cryptocurrency world, and we need to look at them before we come to a conclusion, Merch said. If token-based digital currencies do not guarantee complete anonymity, the chances of the adoption of the CBDC would be extremely minimal. If a retail CBDC is launched, then it is expected to be based on digital tokens.
A digital token structure would enable the currency to move in a decentralized manner and therefore provide an extra layer of security. The ECB was not the only major bank interested in the evolving crypto field, as shown by the most recent study by the Bank of International Settlements. According to the BIS, most of the world’s big banks have been playing with blockchain or digital assets.
The report concluded that the resources being pumped into the industry were still not sufficient to create the main CBDC platform. Progress may still be hindered as the coronavirus continues to wreak havoc across sectors. Researchers have also shown that the virus has the capacity to mutate constantly, making it harder to fight than ever before.
Conclusion
The introduction of cryptocurrency through traditional industries has been seen as the main focal point for the development of the virtual asset world. Many countries around the world have seen the potential of cryptocurrencies with super-powers like China to establish their own centralized digital currency.