ECB President Explores Future Potential For Digital Currencies

The ECB president explores the potential for a digital currency which will allow for a direct injection of liquidity to the consumers according to Christine Lagarde, the new president at the European Central Bank. Let’s see what she has to say about digital currencies in the latest altcoin news.

In the first hearing where the ECB president explores the possibilities before the European Parliament, Lagarde commented that the central banks may adopt a digital currency since she is known to be friendly to the idea of digital currency during her mandate in the IMF. Her positive attitude could contribute to the overall sentiment for crypto support in the European Central Bank as well. Lagarde’s position was tentative, saying that direct liquidity injections could pose risks.

The central bank digital currency could allow citizens to use the central bank money directly in the daily transactions but depending on the design, a central bank digital currency could also pose risks. For example, they could alter the way in which monetary policies are conducted and transmitted to the real economy. The ECB has a mandate to keep up the liquidity while also maintaining the inflation to a predetermined 2% rate and in order to achieve this, the bank lends liquidity to commercial banks and set a base interest rate. The injection of liquidity uses legacy electronic systems and the money then gets back to the economy and consumers via lending and other commercial bank activities.

The central bank is also the last resort lender and supports the solvency of banks. A digital currency could also be accessible directly to consumers and this approach to guiding the economy has not been tested but it is only hypothetical.
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The ECB tested blockchain solutions and Bitcoin in the past concluding the speed and scale of the system which were not capable to carry the transactions at a scale of a global financial system. However, the bank worked its own solution or a different form of centralized digital currency.

Lagarde didn’t mention the word ‘’cryptocurrency’’ and made a distinction between digital assets and currency. Most of the supporters see Bitcoin and other coins as lying in the fixed supply and low inflation and the idea of BTC is actually to have a flexible monetary policy that uses money to stimulate economic activity.