French central bank: ECB digital currency issuance depends on two key options

Government agencies around the world no longer despise central bank digital currencies or CBDC. After China strongly supports state-controlled digital assets, institutions around the world are setting up their own working groups to implement their own CBDC development.

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The European Central Bank has also shown strong interest in this, and the positive attitude of European Central Bank President Christine Lagarde to develop cross-border payments has also attracted widespread attention.

However, this task is not as simple as it seems.

A study recently released by the French central bank, the French bank, discussed the possibility of the European Central Bank launching the CBDC. It said that the issuance of the CBDC will depend on the selection criteria of the assets, as they need to be integrated into existing regulations to avoid re-modifying the legal text.

The report continued to clarify that if the issuance of the CBDC goes beyond "mere technical procedures", the ECB will have two main options to facilitate implementation. The first option is to equate the CBDC with a form of digital banknote, which will allow the CBDC to act as and mirror the banknote, which corresponds to the case of a retail retail CBDC for free. But this situation will greatly limit the characteristics of CBDC. Issuance in digital currency will require consensus among EU member states [TFEU Article 128 (2)], as they are jointly responsible for issuing the currency. Since they are jointly responsible for the adoption of the new currency, legal action by the Council of the European Union is also required.

Here, it should be pointed out that CBDCs issued in the form of physical notes and digital coins may weaken their cross-border functions, which is completely contrary to the purpose emphasized by the ECB President.

The second option revealed by the report was to accept the issuance of the CBDC due to the rise of "dematerialization" and make its implementation in monetary policy easier. This situation will allow tokenized assets to be accepted as collateral for money business, while encouraging a smoother operation of the payment system. However, the main consequence of CBDC's acquisition of fiat currency status is the difficulty in accepting it as a payment method under the current circumstances. The report says,

"The payer needs to have the technical equipment needed to receive payments in the CBDC, which raises the issue of equal opportunity."

Earlier, Yves Mersch, deputy chairman of the European Central Bank's supervisory board, had expressed concerns about the issuance of the central bank's digital currency (CBDC), noting that "this may affect the entire financial ecosystem and eliminate the banking system."

The first option suggested by the report does overlap with the disadvantages mentioned by the vice chair, but another possibility is that the European Central Bank can facilitate the exchange of CBDC with other forms of currency, and this commitment should be considered equivalent to the law status.

The study concluded:

"A retail CBDC with fiat currency status or covered by the aforementioned exchange commitments can maintain its connection with the public currency by guaranteeing the forced conversion of public and private currencies to public currency. As a result, this will help maintain the financial system Confidence."

French bank report highlights the possibility of the European Central Bank issuing a CBDC, as just a few months ago, ECB executive board member Benoît Cœuré revealed that the European Central Bank is working to achieve this . A pan-European approach to CBDC may be introduced and implemented in the future.

A few months before that, the European Central Bank (ESCB) confirmed its exploration of crypto assets and stablecoins to further financial innovation.