Central bank digital currencies (CBDCs) have progressed from being purely theoretical concepts to one of the highest priorities for central banks around the world. As the European Union understands itself as a global technology leader, it is crucial to deepen and accelerate the research on a digital Euro. The Digital Euro Association (DEA), a think tank specialized in digital money, offers expertise and know-how related to digital money through its more than 180 renowned experts. With this call to action, we highlight the importance of a digital Euro for the Eurozone and suggest establishing a Digital Euro Research Facility, a Digital Euro Lab that includes experts from financial institutions, think tanks, the (tech) industry, and other sectors. This proposal is in line with the actions conducted by other major central banks like the Bank of England and the Bank of Canada. The DEA would be thrilled to provide assistance in creating such a Digital Euro Lab and share input and research resources for detailed analysis about the digital Euro in collaboration with the European Central Bank (ECB).
CBDCs are changing the monetary system
Rapid technological progress and innovations have driven the evolution of money. The development of CBDC solutions has brought many challenges to light, e.g., related to regulation, security, privacy, and financial stability. However, the benefits of CBDCs in general and the digital Euro in particular are also numerous. A digital Euro has the potential to provide a resilient, independent, autonomous payment system, increase financial inclusion, and improve financial integrity and payment efficiency.
As there are many different approaches for designing and developing a CBDC system, the need for further research is immense. Therefore, it is crucial to set up a research facility filled with experts and expertise from central banks, academia, the private sector and other stakeholders, not only considering the central banking perspective on a digital Euro but the perspective of all relevant stakeholders.
What is missing?
In the last quarter of 2020, The Bahamas was the first country that officially launched a CBDC, the Sand Dollar. In March 2021, the Organisation of Eastern Caribbean States became the first currency union starting a CBDC pilot, the so-called DCash. In mainland China, the People's Bank of China is bolstering their efforts to implement pilots in a higher number of cities in the country with the aim of launching its digital Yuan around the 2022 Winter Olympic Games. Also other jurisdictions such as Japan, Sweden, the USA and Canada intensify their CBDC efforts.
In light of these developments, the ECB has started to research the digital Euro but experimentation seems to have just begun. So far, the ECB has released a report on and launched a public consultation about the digital Euro. The forthcoming BIS Hub in Frankfurt or Paris may boost the research on the digital Euro. Nevertheless, a Digital Euro Research Facility, i.e. a Digital Euro Lab that also includes non-ECB experts, such as financial institutions, think tanks, the (tech) industry, and other agents of the ecosystem, is needed to provide a digital Euro solution that is beneficial for the whole society. Recently, the Bank of England and the UK Treasury have announced the joint creation of a CBDC taskforce to coordinate the exploration of a potential UK CBDC. In addition, they announced a CBDC Engagement Forum and a CBDC Technology Forum to take into account the opinions of external experts. In a similar vein, the Bank of Canada has consulted academia to study different ideas for a CBDC proof-of-concept. As a result, three Canadian universities have proposed different designs of a CBDC. Following the approach in the UK and in Canada, the ECB should also explore such strategies to include external experts, such as academics, in the discussion around the digital Euro.
The role of the Digital Euro Association for a Digital Euro Lab
The issuance of a digital Euro, if not prepared and researched properly, could also have adverse effects on the European economy. For example, a potential disintermediation of commercial banks might lead to undesired consequences both in the financial economy and the real economy. It is therefore of utmost importance to include all relevant stakeholders in the testphase of the digital Euro-project. To this end, we propose the Digital Euro Lab as a research facility consisting of experts from various sectors and backgrounds. The Digital Euro Association (DEA), as an independent think tank gathering knowledge and experts around digital money could provide research resources. It has more than 180 members with expertise in regulation, banking, technology and monetary policy and other fields.
Since the DEA is according to its mission “committed to independence and excellence, aiming to set the agenda and to shape policy by encouraging new ideas and forward-thinking in the field of digital money”, we could imagine that the ECB may benefit from such a collaboration to realize a digital Euro that, in the end, provides value added throughout the society in the whole Euro Area.