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Central Bank, COVID-19, Crisis, Digital Euro, European Central Bank, Economy, European Union, Euro, Europe, European Central Bank, Luis de Kindos, Pandemic, Recovery, Vaccination, Deputy Governor
Faced with many challenges, the European Central Bank is now deepening its analysis of how to digitize its currency. A senior central bank official confirmed that it is expected to make a decision about whether to issue a digital euro with the potential to become a major CBDC around the middle of 2021.
The European Central Bank plans to plan a “cautious withdrawal” from the social, economic and health emergencies that forced the EU to withdraw from the Covid-19 crisis. The European Central Bank also has to consider the digital version of the euro, the legal tender of the European Monetary Union. The Federal Reserve is preparing to show the prototype of the digital dollar in July. Facebook-backed daily currency linked to the US dollar is scheduled to be launched this year, and China has provided its citizens with the service of applying for a digital renminbi wallet.
The Deputy Governor of the European Central Bank, Luis de Guindos, told the press that in this context, the central bank of the euro zone is now stepping up its efforts to thoroughly study the option of issuing its own digital currency. He also confirmed that the bank’s board of directors will decide whether to launch a digital euro project around mid-2021. The official said in an interview with Italian “Daily News”:
Our current focus is to deepen our analysis of how the digital euro should work and how it should benefit European citizens and our economy.
According to the English translation of the European Central Bank’s recent interview this week, de Guindos also pointed out that the central bank has played a key role in responding to the coronavirus pandemic. .”
In an earlier interview with Público, the former Minister of Economy of Spain insisted that the digital euro is not a reaction to cryptocurrencies. In his words, the main reason behind this is that digitalization has become more and more important, and the pandemic has accelerated the pace. “For us, the digital euro is not an option. This is what we have to do. From the perspective of the potential impact on financial stability and monetary policy, it is not trivial. Therefore, we will have to calibrate the project to the greatest extent possible. To reduce the potential negative effects that it may have.” Luis de Guindos emphasized.
Other issues are also issues that the European Central Bank must address, which stems from Europe’s slow recovery from the pandemic. The European Union lags behind the United Kingdom, Israel and the United States, where vaccination has accelerated and socio-economic conditions have begun to improve. The vice president of the bank described the status quo in the Old World as “bittersweet.”
“The first quarter was weaker than we expected three months ago. On the other hand, the pace of vaccination across Europe is accelerating. This is good news because it will have a significant impact on the economy… I hope we will be in early summer. The situation will be much better.” de Guindos predicted. He added that based on positive expectations for the second half of the year, current estimates indicate an increase of about 4%.
The negative impact of the Covid crisis has been very different among member states. Last year’s GDP fell sharply, from 4% in the Nordic countries to 5%, and 11% in Spain. Other countries, such as Italy, have seen a surge in public debt. It is expected that non-performing loans will increase later this year, and the inflation rate may exceed 2%. Luis de Guindos said that the European Central Bank may “start to consider phasing out the emergency model of monetary policy”, but he also rejected the idea of cutting public debt and raising interest rates.
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