Europe Parliament Recommends Researching CBDCs
The European Parliament's Committee on Economic and Monetary Affairs recently published an analytical paper with a mixed review of the digital euro.
Titled "Digital Euro: When in doubt, abstain (but be prepared)," the paper was commissioned to economist Ignazio Angeloni to assess the launch preparations for the digital euro. Angeloni analyzed 10 potential issues that the digital euro would face, with a focus on its drawbacks.
While commercial banks could provide frontend services to digital euro users under an intermediated model, a digital euro would also compete with commercial banks for deposits, which may generate adverse incentives. The paper emphasized the importance of a well-designed compensation structure for the services provided by banks, but the European Central Bank (ECB) reports did not provide any information on this.
Angeloni also noted that the introduction of a digital euro may have a disruptive effect on the banking system, and the ECB needs to prepare for it. While the digital currency needs to be attractive enough to gain customer acceptance, it should not be too attractive to undermine the banking system.
Furthermore, if the digital euro pays interest, it will need to be managed separately from cash interest rates to avoid encouraging arbitrage operations. We can expect ECB’s decision about the realization phase towards October.
Sources:
https://www.europarl.europa.eu/RegData/etudes/IDAN/2023/741507/IPOL_IDA(2023)741507_EN.pdf