A 25-page initial study on the research topic by the Academy fellows of 2021/22 Alexandra Campmas and Nadina Iacob (January 2022).

In a world of transformation, digitalisation is permeating numerous aspects of our lives and has gained even more momentum in the face of the COVID-19 pandemic. The interest in central bank digital currencies (CBDCs) is a natural development, seeking to understand how the toolbox of central banks might evolve with innovative technologies and trends. According to a survey of central banks covering more than 70% of the world’s population (Boar & Wehrli, 2021), 86% of central banks are already looking into the benefits and drawbacks of CBDCs. Among them is also the European Central Bank (ECB), with exploratory work underway to understand what role a digital euro could play in the future.

This paper represents the first milestone in a research project seeking to investigate the implications of a digital euro and its potential to shape the future of the EU. The overall project considers both micro-level implications, by investigating and mapping the different opportunities and challenges across the various stakeholders and macro-level aspects, analysing what a digital euro could mean for the EU integration process and more broadly for the EU as an international actor. Against this background, this paper presents an analysis of key trends and developments related to CBDCs and the digital euro in particular. In addition, the paper puts an emphasis on categorising the potential implications of the digital euro on the stakeholders in the ecosystem of payments in the euro area and beyond, outlining at the same time key questions to be investigated further in the framework of this project. The paper is based on an extensive review of sources including research papers, reports from central banks and international organisations and surveys.

The paper is structured as follows. Section 1 presents the different types of digital currencies, noting the differences between a CBDC and other developments such as cryptocurrencies and stablecoins. Section 2 describes the trends and motivations behind the ongoing work of central banks on CBDCs. It also provides an overview of payment systems and habits in the euro area to understand what a digital euro would bring in the existing system. Based on the current plans of the ECB for the digital euro, section 3 develops the core analysis of the paper, outlining the potential implications of the digital euro on stakeholders (including citizens, businesses, commercial banks, as well as third countries) and open questions to be investigated further in the project. Section 4 discusses broader policy implications of relevance. Finally, section 5 draws preliminary conclusions and outlines next steps.

Read the full study here.