Fit for the future: central bank digital currencies Guest contribution in BaFinJournal 03/2022

Our everyday lives are becoming increasingly digital – and our payment habits are changing, too. New market participants are offering products with the aim of improving and accelerating payments. Central banks are faced with the question of how they can make the currencies they issue fit for the future. Central bank digital currencies (CBDCs) could be one solution, and central banks around the world are working intensively on this.

The introduction of CBDCs would result in a third form of central bank money, alongside cash and commercial bank deposits at central banks. This new form of money would complement cash and could be used for payments between individuals, in e-commerce or at the point of sale. With this solution, the Eurosystem’s central banks would offer an alternative to other means of payment developed by the private sector, such as stablecoins and crypto tokens.

The digital euro project

In collaboration with the Eurosystem central banks, the Bundesbank has stepped up its analytical work on the digital euro following a decision by the Governing Council of the European Central Bank (ECB) in July 2021 to launch a project on this topic. The potential design and impact of a digital euro, including how it would affect monetary policy and financial stability, are being examined more closely in a two-year investigation phase. Important questions have come up in this context in relation to ensuring data protection and privacy. Only after the end of this investigation phase will the ECB’s Governing Council decide, in close cooperation with the EU’s legislative bodies, whether to launch a digital euro. But if they do decide to issue a digital euro, the currency would not be rolled out until 2026 at the earliest.

One particularly important aspect in the investigation phase will be how to achieve synergies with market participants. Maintaining a close dialogue with them is essential, which is why I am delighted that we will have the opportunity to exchange views and ideas at BaFinTech. This event is being held for the first time in cooperation with the Bundesbank, and I am already looking forward to having lively discussions with banks and fintech companies as well as political and industry representatives.