According to a Bloomberg article, a study by the European Central Bank (ECB) finds that among central banks considering issuing a central bank digital currency (CBDC), it is advantageous to be an early mover — and there are good reasons for that.
“Introducing a central bank digital currency as early as possible could give a significant advantage to its issuer,” the study’s authors stated.
Indeed, countries without a digital currency may need to take stronger measures to remain competitive compared to those that adopt these new forms of money.
“A country without a digital currency would lose some control over its monetary policy, being forced to respond more aggressively to spillovers from countries that possess such an instrument,” observed researchers Massimo Minesso Ferrari, Arnaud Mehl and Livio Stracca.
The People’s Bank of China appears to be making the most substantial progress in researching and deploying its digital yuan. China has already carried out significant pilot tests in several major cities, including the capital, Beijing.
The European Central Bank is also exploring the implications of a digital euro. Although Christine Lagarde, President of the ECB, said she was not “racing to be first,” she indicated the institution could decide on launching a crypto-euro in early 2021. The ECB estimates it would then take two to four years to develop and implement such a project.
As Frédéric Montagon, co-founder of LGO, explains, this race requires speed. Equally important is understanding the characteristics, benefits, risks and policy challenges of a crypto-euro. The development and use of such a currency could also pave the way for innovations that might fundamentally reshape the financial landscape.
“If made interoperable, the digital euro could unlock a wave of innovation. This is no longer speculative — the digital euro is on its way. The only unknown is its origin: will it be developed by American or Chinese companies, or by European or French institutions? This is a major question of digital sovereignty. To win this race, speed is necessary, but above all we must clearly define the features that will make the digital euro competitive and widely adopted,” he told Crypto Capital.