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Digital Euro Could be More Popular Beyond EU's Borders: Lagarde

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Authorities in the EU, U.S. and other jurisdictions need to compare notes on central bank digital currencies to regulate them better, according to the ECB chief.
ECB President Christine Lagarde. (Thierry Monasse / Collaboratore / Getty)
A digital euro "could well be" more popular beyond the European Union's borders, according to European Central Bank (ECB) President Christine Lagarde.

The digital version of a euro should be "borderless" and it should be "regulated and properly supervised" Lagarde said responding to a question while speaking at the Atlantic Council's Frankfurt Forum on U.S.-European GeoEconomics on Wednesday.

"But it can facilitate cross-border payments in a big way, which is why between the United States authorities, the European authorities and others beyond that, we need to compare notes," Lagarde said.

The ECB is halfway through a two-year investigation into a digital euro for retail payments, and although it has yet to make a decision on issuing one, the EU Commission responsible for proposing new legislation, is preparing a digital euro bill. The ECB has also picked five payments providers to work on prototypes for digital euro apps.

Although Lagarde did not directly address the implications of a digital euro potentially being adopted by a country as an official currency – in the same way that El Salvador and Ecuador use the U.S. dollar – the ECB has previously addressed the risks of currency substitution associated with a digital euro when used beyond EU borders.

"Similar design features would have to be applied to the use of a digital euro by non-residents. This would stop a digital euro replacing other forms of investment and facilitating currency substitution in countries outside the euro area," Fabio Panetta, an ECB executive board member, said in a 2021 speech. "In any event, international cooperation on design, cross-border use and interoperability would be key to reap the potential benefits of CBDCs for cross-border payments, while addressing risks to the international financial system."

Responding to a question on why EU residents would be interested in a digital euro when digital payments are already widespread in the bloc – where cash usage is on the decline – Lagarde reiterated the ECB's stance that a central bank digital currency should be something the ECB should be ready to make available if people want it.

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