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ECB to Issue Digital Euro by 2029 Amid Concerns Over Monetary Sovereignty

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ECB to Issue Digital Euro by 2029 Amid Concerns Over Monetary Sovereignty

The European Central Bank (ECB) is taking steps to safeguard the euro's role in the digital era, with Executive Board Member Piero Cipollone announcing plans to issue a digital euro by 2029. In a speech at Sapienza University, Cipollone highlighted the importance of monetary sovereignty and the need for the euro to remain competitive in a rapidly changing financial landscape.

Key Policy Decision

While there was no interest rate decision or asset purchase changes announced in the speech, Cipollone outlined the ECB's plans for the digital euro. The ECB is making technical preparations to issue the digital euro, pending the adoption of the digital euro Regulation by the end of 2026. If adopted, the ECB intends to launch a pilot in 2027 and issue the first digital euro in 2029. The digital euro will provide a European public payment option, based on European technology and infrastructure, allowing for digital payments online and offline throughout the euro area.

Economic Assessment

Cipollone noted that the euro has proven resilient since its inception, despite numerous crises, and remains the second most important currency in the international monetary system. The euro's share in global currency use stands at close to 20%, higher than the euro area's weight in global GDP. Additionally, 82% of people in the euro area trust the euro, highlighting its stability and strength. The ECB views the euro's international role as crucial to maintaining monetary sovereignty.

Market Implications

The introduction of the digital euro is expected to have significant implications for European financial markets. By providing a European public payment option, the digital euro will reduce dependence on non-European solutions, such as international card schemes, which currently account for two-thirds of card transactions in the euro area. The digital euro will also enable banks to offer their clients payment solutions that fulfil all their needs, without relying on proprietary standards. Furthermore, the ECB's plans to enable settlement in tokenised central bank money will support the development of a new digital finance ecosystem, potentially transforming the European financial landscape.

Forward Guidance

The ECB's plans for the digital euro are contingent on the adoption of the digital euro Regulation, with a political agreement recently reached in the European Parliament. The ECB awaits a formal endorsement of the Regulation in the coming weeks, followed by a swift conclusion of the trilogue between the EU Council, the European Parliament, and the European Commission. The ECB is also working on connecting commercial DLT platforms to its TARGET Services, with the Pontes project set to be available in the coming months. A full blueprint for the Appia programme is expected to be published in 2028.

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