Central banks

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

INTERVIEW

Interview with La Repubblica

Interview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted by Tonia Mastrobuoni and published on 11 May 2020

• 11 May 2020 The German Constitutional Court said that the ECB's public sector purchase programme (PSPP) is partly unconstitutional.
• The ECB is a European institution, meaning that the European Court of Justice has exclusive jurisdiction over the ECB and its actions.
• Is it dangerous if a national court declares a verdict of Europes highest court to be ultra vires, or illegitimate?
• It is not for me to judge the legal aspects of the verdict, but its implications can clearly go beyond the ECB.
• The ECB foresees a very strong contraction of the eurozone economy in the worst-case scenario; up to 12% for this year.
• Christine Lagarde spoke of an economic contraction of a magnitude and speed that is unprecedented in recent history.
• So why did the ECB last week focus mainly on helping banks instead of increasing its coronavirus stimulus programme?
• Yes, we are indeed facing a very deep economic crisis, on top of a humanitarian crisis, which has hit Italy particularly hard.
• The ECB has responded forcefully and swiftly in order to mitigate the economic and financial fallout from the crisis.
• We have adopted a very broad set of measures, including additional asset purchases under the asset purchase programme (APP) and under the new PEPP.
• The PEPP gives us ample flexibility to allocate our purchases across time, asset classes and jurisdictions.
• We are using this flexibility to make sure that our monetary policy is transmitted to all euro area countries.
• But the euro area economy is largely bank-based, also in Italy where small and medium-sized enterprises (SMEs) play an important role.
• As a package, these measures reinforce each other and support both European households and firms in these very difficult times.
• What do you expect now from the banks, after the decisions you took at the last Governing Council meeting?
• In addition, we introduced a new set of operations last week the pandemic emergency longer-term refinancing operations, or PELTROs.
• This programme has an ample degree of embedded flexibility, and it is the right tool to deal with the current crisis.

• PRESS RELEASE

  ECB supports macroprudential policy actions taken in response to coronavirus outbreak

  15 April 2020

  The European Central Bank (ECB) supports the measures taken by euro area macroprudential authorities to address the impact of the coronavirus (COVID-19) outbreak on the financial sector.

• These macroprudential actions complement and reinforce the measures announced by ECB Banking Supervision since 12 March 2020.
• The ECB, in the exercise of the macroprudential tasks conferred by the Single Supervisory Mechanism Regulation[1], is responsible for assessing macroprudential measures considered by national authorities in the countries subject to ECB Banking Supervision.
• The ECB has today published an overview of the macroprudential measures taken by euro area authorities (including central banks and banking supervisors) in response to the coronavirus outbreak and their impact on banks regulatory capital.

• Swap line reactivated as of 20 March 2020, to remain in place for as long as needed
  The European Central Bank (ECB) and Danmarks Nationalbank have today reactivated a currency arrangement (swap line) and increased the maximum amount to be borrowed by Danmarks Nationalbank from 12 billion to 24 billion.
• It will remain in place for as long as needed.
• The purpose of the reactivation is for Danmarks Nationalbank to provide euro liquidity to Danish financial institutions.
• For media queries, please contact Eva Taylor , tel.