Monday, December 6

Governor Banco España sees digital euro as good for financial stability


Pablo Hernández de Cos, Governor of the Bank of Spain, today referred to the digital euro as a device for financial stability. In its intervention at the Assembly of the Financial Markets Association, de Cos indicated that the digital euro could be a timely counterweight to certain trends, if it is designed properly. For example, for stablecoins. Stable currencies could rapidly and uncontrollably transform the way money and credit are created in the economy, de Cos said.

Bank of Spain and the digital euro

The Governor of the BdE assured that the advances in digitization that underlie the recent momentum of the CBDC are the same ones that are simultaneously blurring the rules of the game that governed the financial industry until now, giving rise to a disintegration and decentralization of the traditional value chain ”, he indicated.

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De Cos assured that the digital euro could “prevent a possible recomposition of the supply of financial services from occurring in a disorderly and discriminatory manner.” If it were to happen, he said, it could create potential situations of market dominance or excessive fragmentation. Which would end up harming key players for financial stability and users.

A smartly designed digital euro, he said, could serve as a unifying element of the European payments circuit, structuring it around central bank money. That nuclear role, he said, could extend beyond the realm of payments. For example, it could serve to promote the creation of a framework for the establishment and recognition of electronic identity. Or for a certain standardization of distributed ledger technologies.

New business opportunities

In this sense, he specified that the relationship between technology and digital currency is two-way. “Where the technologies are better developed, the faster it is possible to advance in the deployment of a digital currency. But where this is not the case, as is the case in many eurozone countries, it could have a revitalizing effect. De Cos gave the Singapore experience as an example. This country built last year an infrastructure prototype and a set of associated interfaces, capable of interweaving blockchain networks of different industries. A way to enable business opportunities previously non-existent, he explained.

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In his list of potential opportunities linked to a possible digital euro, de Cos also referred to “the role it can play in improving cross-border payments promoted by the G20.” It could be an important piece to promote the adaptation of the European financial and payments system to the needs of a changing digital environment, he said. In addition, it would do so while preserving consumer protection mechanisms, privacy, the prevention of money laundering or the promotion of competition.

Competition with commercial banks

De Cos also said that the issuance of a digital euro should never compromise price stability or the stability of the financial and monetary system. In this sense, he indicated that the digital euro can potentially affect financial intermediation in an important way. “Substituting the means of payment that the financial sector now provides, or even the deposits that banks now guard. This fact could negatively affect financial stability. Particularly in times of crisis, when the appetite for holding deposits with the central bank can increase significantly. ‘ In the event that digital currencies are accessible to non-residents and are interoperable with payment systems of other currencies, the negative effects could have a global dimension, he explained.

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Using a digital currency outside of the issuing jurisdiction can increase the risks of digital currency substitution, de Cos said. A risk that can be particularly high for emerging countries, since it can alter the international role of different currencies. This matter pointed out by the Governor of the BdE has already been pointed out by some experts in the case of China’s digital yuan.

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