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Failure to issue CBDCs could affect stability, ECB warns

Updated: Jul 25, 2024
Published: Jun 3, 2021
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The European Central Bank (ECB) has warned that central banks failing to issue digital currencies presents risks to economic stability.

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Central banks need to issue CBDCs

One of the most widely discussed topics in the crypto space over the past year is the need for central banks to issue central bank digital currencies (CBDCs). Some apex banks have already begun researching ways to develop CBDCs, while others have advanced to the development stage.

A new study by the European Central Bank warns that there are risks to economic stability if central banks don't offer CBDCs. The report, written by economist Massimo Ferrari and international economist Arnaud Mehl, highlighted the need for CBDCs and how they are key to future financial strength.

The authors said, "Attention should be paid to the risks to stability that might arise if a central bank does not offer a digital currency. Issuing a CBDC would help to maintain the autonomy of domestic payment systems and the international use of a currency in a digital world."

Central banks are seeing the need for CBDCs

Central banks in various parts of the world are coming out to discuss the need to develop and issue their central bank digital currencies. The rise in the adoption of cryptocurrencies, especially stablecoins, over the past year is one of the key reasons why central banks are becoming serious with developing their digital currencies.

The pandemic also accelerated the adoption of digital payment options, as people spend a chunk of last year at home. So far, a few countries, including China, have advanced in the development of their digital currencies. China is already testing its digital Yuan to see how it would perform in the real world.

The ECB under President Christine Lagarde has positively received the idea of developing the digital Euro to complement physical cash. However, the ECB is still figuring out the necessary infrastructure behind the digital Euro. Lagarde predicts that the digital Euro should launch in four years.

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