Central Bank Digital Currency

• Under a new program from Mastercard and Island Pay , the Bahamas Sand Dollar prepaid card gives people the option to instantly convert the digital currency to traditional Bahamian dollars and pay for goods and services anywhere Mastercard is accepted on the Islands and around the world.
• The digital Sand Dollar is issued by the Central Bank of The Bahamas and carries the same value and consumer protections as a traditional Bahamian dollar.
• Cash money movement becomes costly, which makes a central bank digital currency (CBDC) a preferred digital payment in the region.
• Richard Douglas, co-founder of Island Pay, said: By working closely with the Central Bank of The Bahamas and Mastercard, we are able to issue a prepaid card unlike any other in the world.

• PRESS RELEASE

  ECB intensifies its work on a digital euro

  2 October 2020

  The European Central Bank (ECB) today published a comprehensive report on the possible issuance of a digital euro, prepared by the Eurosystem High-Level Task Force on central bank digital currency (CBDC) and approved by the Governing Council.

• The euro belongs to Europeans and our mission is to be its guardian, said Christine Lagarde, ECB President.
• The Eurosystem task force, bringing together experts from the ECB and 19 national central banks of the euro area, identified possible scenarios that would require the issuance of a digital euro.
• A digital euro would preserve the public good that the euro provides to citizens: free access to a simple, universally accepted, risk-free and trusted means of payment.

SPEECH

Unleashing the euro’s untapped potential at global level

Introductory remarks by Fabio Panetta, Member of the Executive Board of the ECB, Meeting with Members of the European Parliament

• Today, I would like to briefly present the main findings of our recent report on the international role of the euro.
• Next, I will discuss monetary policy considerations associated with a stronger use of the euro internationally, before moving on to the polices that could unleash the euros untapped potential at global level.
• I will stress the alignment between policies that will strengthen the euros role internationally and policies that will make the euro area more robust and fit for the future.

The role of the euro in global markets

• This is one of the main findings of the 19th annual review of the international role of the euro, which we published on 9 June 2020.
• In some areas, however, such as the global green bond market, the euro has had a head start relative to the US dollar.
• In 2019, for instance, almost half of global green bond issuance was denominated in euro.
• In the future, the swift implementation of an EU taxonomy of sustainable economic activities would provide a credible and standardised framework, ensure greater investor confidence and also contribute to strengthening the international role of the euro.

The effects of international currency status on the ECB’s monetary policy

• [2]This position reflected two differing views one that emphasised the economic benefits of international currency status, and another that emphasised the costs.
• With rapid financial globalisation, rising challenges to multilateralism and the adoption of new monetary policy frameworks by major central banks, the relevance of some of the traditional effects of international currency status has declined, while other effects have become more apparent.
• For instance, international currency status strengthens the transmission of monetary policy, notably if stronger use of a currency as an international funding unit amplifies the cross-border effects of monetary policy impulses.
• Through spillback effects, the resulting impact on demand across the world may give monetary policy a wider, and possibly larger, domestic impact.
• Moreover, international currency status lowers exchange rate pass-through, which helps shield inflation from foreign shocks.

Unleashing the euro’s untapped global potential

• The euros global potential has not been fully realised, however.
• Moreover, as I have also stressed recently, the euros international role will grow only if we can better share its benefits, or privilege.
• A global currency requires a central bank that acts as a credible backstop to safeguard liquidity conditions in the financial system.
• The Eurosystem repo facility for central banks (EUREP)[4] reflects the importance of the euro in global financial markets and will support the smooth transmission of our monetary policy.
• Looking beyond the immediate aftermath of the pandemic crisis, the acceleration of the digitalisation of money may have implications for the euros global role.
• But, if the CBDC is allowed to be used outside the euro area, it is likely to have implications for the global monetary and financial system too.
• For instance, the euros international role could be strengthened if the CBDC represented an attractive payment vehicle or store of value for non-euro area residents.
• It could have implications for capital flows and the exchange rate of the euro, with potential knock-on effects on euro area and global economic developments.

Conclusions

SPEECH

An ECB digital currency – a flight of fancy?

Speech by Yves Mersch, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, at the Consensus 2020 virtual conference, 11 May 2020

• [1] The European Central Bank is one of them.
• Not because we want to keep up with fashionable trends, but because we have to be ready.
• Ready to embrace financial technological innovation which has the potential to transform payments and money faster, and in more disruptive ways, than ever before.
• We currently see no indication that the public at large is willing to abandon the valued and trusted advantages of cash.

Part of ECB mandate to be ready for change

• Reliable access to money would then hinge on the stability and efficiency of private retail infrastructures.
• And trust in money itself would rely on trust in the intermediaries that issue private money.
• [2] This is one reason why central banks keep fully up to speed on financial technological developments.
• After all, providing safe money and a reliable means of payment have been an integral part of the mandate and core business of central banks since their very inception.
• Whether and when it becomes more of a policy debate will largely depend on the preferences of households.
• Let me give you a preview of our deliberations, starting with different design options.

Legally solid despite fancy design?

• This is true for the bulk of the money issued through our wholesale credit operations with our counterparties.
• At present, access to the central bank balance sheet offers the possibility to access digital central bank money.
• What could change in the future is the scope of the parties eligible to access our central bank balance sheets.
• A wholesale CBDC, restricted to a limited group of financial counterparties, would be largely business as usual.
• Setting up a CBDC would require a solid legal basis, in line with the principle of conferral under EU law.
• One key consideration here is whether a retail CBDC could and should have the same legal tender status as banknotes and coins.
• These are just two of the many ways to design a CBDC.

Disintermediation – economically inefficient and legally untenable

• The main reason is that introducing a retail CBDC could have major consequences for the financial system.
• During a systemic banking crisis, this could trigger digital bank runs of unprecedented speed and scale, magnifying the effects of such a crisis.
• Banks might manage to render their deposits more attractive than central bank ones.
• They could, for instance, provide additional services to those offered by central banks.
• Otherwise even in the absence of a crisis a readily convertible CBDC could crowd out bank deposits, leading to the disintermediation of the banking sector.
• If the central bank were to take retail deposits, it might also have to provide loans, with all the ensuing consequences.
• [5] But disintermediation would be economically inefficient and legally untenable.
• I am nearing the end of my speech but look forward to exchanging views with you during our virtual Q&A session.

Conclusion