According to the ECB's annual euro report, a digital euro may be required to battle the threat of ‘artificial currencies’ from ‘foreign tech titans.’
The European Central Bank suggested that a CBDC, or digital euro, must battle to avert the threat of ‘artificial currencies’ dominating cross-border payments.
In the ECB's annual evaluation of the euro, titled ‘The International Role of the Euro,’ economists Massimo Ferrari and Arnaud Mehl expressed alarm about the rise of artificial currencies driven by unnamed ‘foreign internet giants’ - most likely a veiled allusion to Facebook's Diem project:
“One source of concern might be a situation in which non-domestic providers dominate domestic and cross-border payments, including foreign digital behemoths potentially issuing artificial currencies in the future.”
“Not only could this jeopardize the financial system's stability, but individuals and merchants alike would be susceptible to a small number of dominant suppliers with considerable market power,” the pair added.
The ECB has long been concerned about the growth of artificial currencies or stablecoins in Europe and has previously requested veto powers over private stable initiatives such as Facebook's Diem currency.
The ECB has taken a cautious approach to releasing a digital euro, with ECB head Christine Lagarde stating in January that “it's going to take a good chunk of time to make sure it's safe,” adding, "I would hope that it's no more than five years."
The research ‘CBDCs and Global Currencies’ by Ferrari and Mehl looked at ‘many situations in which the necessity to create a digital euro’ may become relevant. The economists stressed the importance of big tech firms competing with big tech firms for payment products and services.
According to the authors, a digital Euro may eliminate the need for foreign currencies in international transactions.
According to the report, low transaction costs and bundling effects may improve the appeal of invoicing cross-border transactions. The paper also said that "certain design aspects of a CBDC would be necessary for its worldwide appeal."