28.03.2024

ECB President Pushes for a Central Bank Digital Currency

In an interview with French business magazine Challenges published on Jan. 8, Lagarde discussed the most likely threats to the global economy in 2020, among which she named a downturn in trade and a range of uncertainties, geopolitical risks and climate change.

Going further, Lagarde noted that “the EU is still the most powerful economic and trading area in the world, with enormous potential.”

The president of the European Central Bank (ECB), Christine Lagarde, supports the bank’s active involvement in the development of a central bank digital currency (CBDC) to address the demand for faster and cheaper cross-border payments.

Not to act as observers of a changing world

When asked about ECB’s dedication to the exploration and development of a CBDC, Lagarde emphasized the urgent demand for fast and low-cost payments, the field where she sees the taking a leading position, rather than remaining observers of a changing world. As such, Lagarde said:

“ECB will continue to assess the costs and benefits of issuing a central bank digital currency that would ensure that the general public remains able to use central bank money even if the use of physical cash eventually declines.”

Lagarde recalled that the bank continues examining the feasibility and merits of a CBDC as such means of payment could exert influence on the financial sector and transmission of monetary policy. She stipulated that the ECB formed an expert task force set to work closely with national central banks to examine the feasibility of a euro area CBDC.

When asked about current initiatives to launch a CBDC at the ECB, a representative told Cointelegraph in somewhat vague terms that:

“We are working on all aspects of CBDC, with in-depth analysis of costs and benefits of such a new form of central bank money. It will take a while before we will communicate on our conclusions.”

Crypto-friendly approach

Lagarde has previously demonstrated a friendly stance towards digital currencies, having said in December last year that ECB should be ahead of the curve regarding the demand for stablecoins.

Last September, when Lagarde was still the head of the International Monetary Fund (IMF) and nominee to be the next president of the ECB, she claimed that she would focus on making sure that institutions promptly adapt to the rapidly changing financial environment.

In the meantime, ECB remains open to the idea of a digital euro equivalent but would want to stop citizens holding too much of it.

China’s Central Bank Completes Top-Later Design and Joint Tests of Planned CBDC

The central bank of China has completed the top-layer design and joint testing of its soon-to-be-released central bank digital currency (CBDC).

As domestic news outlet Sina reported on Jan. 10, People’s Bank of China (PBoC) accomplished the top-layer design of the planned digital yuan, developed relevant standards, carried out research and development and a joint testing of the CBDC.

The bank set forth the latest developments in a dedicated article, also highlighting plans to improve cybersecurity of the financial industry network and formulate rules for the accreditation of critical information infrastructure.

First real-world tests

Reports about China planning to conduct the first real-world test of its CBDC appeared in early December of last year, with the initial pilot for the CBDC set for the city of Shenzhen before the end of 2019, and may possibly include the city of Suzhou.

Within the tests, China’s CBDC was expected to go beyond the central bank system and enter service scenarios such as transportation, education and medical treatment, among others.

Earlier this month, PBoC reported smooth progress with the digital yuan.

Encryption standards of the planned CBDC

As Cointelegraph reported in a dedicated analysis piece, China’s law governing cryptographic password management came into power, with the objective of setting standards for the application of cryptography and the management of passwords. Sale Lilly, China policy analyst and professor of blockchain technologies at the Rand Corporation, told Cointelegraph that the law “is highly complementary to many of the efforts and tasks required to roll out a CBDC.”

Lilly noted that the CBDC-related progress would depend on the stringency of the “Core” and “Common” encryption levels, and further commented:

“If China’s experience in trying to unify government cryptographic standards is anything like the U.S. Military’s experience, higher standards of encryption and trust scale users at a slower rate, so onboarding oracles and trusted agents for a private or permissioned access CBDC blockchain implies a natural trade-off between key security and speed of onboarding digital economy participants; banks, vendors, and a slew of Chinese government entities in tax and finance roles.”

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