The European Central Bank (ECB) says it will look into what a retail central bank digital currency (CBDC) form of the euro might look like.
The ECB set up a task force earlier this year to look into what its potential CBDC could look like, and the group expects to publish a preliminary report in the coming weeks, according to executive member Yves Mersch, an executive board member at the ECB. He spoke during CoinDesk’s Consensus: Distributed conference Monday on central banks and their approach to the digital currency.
“A wholesale CBDC, restricted to a limited group of financial counterparties, would be largely business as usual,” Mersch said. “However, a retail CBDC, accessible to all, would be a game changer, so a retail CBDC is now our main focus.”
A retail CBDC could be based on a digital token circulated “in a decentralised manner,” without a central ledger, Mersch said, though he stopped short of saying the words “blockchain” or “distributed ledger.”
He acknowledged that the traceability of digital transactions would raise privacy concerns among a population used to paying for some things with paper notes.
“Some argue that a token-based digital currency might not guarantee complete anonymity. If that proved to be the case, it would inevitably raise social, political and legal issues,” he said. “We are currently looking into the legal questions raised by the potential use of intermediaries to facilitate the circulation of a CBDC and also the processing of transactions in a CBDC.”
Some of these legal questions include whether the ECB can outsource public tasks to private entities, and what sort of supervision these entities would need.
No Business Case Yet
However, Mersch also acknowledged The European Central Bank currently sees no “business case” for launching its own digital currency but is looking at how one would work should that change.
“The lack of a concrete ‘business case’ for a CBDC 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.”
A key question is whether a CBDC would be legal tender. That would require it to be usable at any location and under any condition, including offline. [For the record, China’s CBDC will be legal tender and can be used offline]. If the digital euro were not legal tender, then its legal position would need to be clarified.
Another legal question (Mersch is a lawyer) is whether the ECB has the exclusive right to issue digital currency in the way it has with euro banknotes. “Should it, in my opinion, not be acknowledged, however, that the ECB’s exclusive right to authorise issuance in euro banknotes and coins should also be applicable to a digital issuance. It’s a legitimate question, but we would need to have legal certainty,” said Mersch.
He later clarified that the ECB has the exclusive right to issue banknotes, but bank coins can be issued at the national level. So the question is whether a CBDC is more like a physical banknote or a coin. Depending on the legal interpretation, that means that individual EU countries could potentially issue digital currencies.