EU Bank Top Official Points Out Digital Yuan’s Risk to Euro
China’s digital yuan may become a key risk to the euro’s international role, the European Central Bank (ECB) Governing Council member Francois Villeroy de Galhau has said.
Villeroy, who is also the Bank of France governor, urged EU policymakers to act on the region’s payment solutions “or risk an erosion of our monetary sovereignty – something we cannot tolerate”.
“The risk is clearly that Europe will lose momentum not just in its drive to strengthen the international role of the euro, but even in preserving it,” he said according to Bloomberg. “The challenge here is also a geopolitical concern.”
Villeroy’s fear that Europe’s lagging behind could have consequences for monetary sovereignty is the first time it would be publicly suggested that the push for the digital euro, the ECB’s version of CBDC, is somewhat linked to fears that China is about to have a first-mover advantage.
China is in the advanced stage of its experimentation with its digital yuan – or Digital currency Electronic Payment (DC/EP) project.
The country has done several tests of the digital yuan over the past year in major Chinese cities. The tests have taken various forms including attempts to use the digital yuan to pay workers.
Just this week, a pilot programme was launched by the Beijing subway – though still only available to users who have bank accounts with the Industrial and Commercial Bank of China. It is to try out passengers using the digital yuan to access the transport service across the capital city’s 24 subway lines and four suburban railway lines, according to the Beijing Municipal Commission of Public Transport.
So far, the test cases have been in line with what some experts have said the large-scale trials will lead to more daily uses of the digital yuan over time which could help develop China’s digital economy.
The Chinese government, on its part too, has maintained that the digital yuan is not meant to replace any major currency – particularly the US dollar as an international reserve and payment currency – but to meet the needs of the internet era. The view has been somewhat re-echoed by officials from several relevant institutions including the US Securities and Exchange Commission and the Bank of Japan, saying the digital yuan is not a threat to the US dollar.
Meanwhile, the concern in Villeroy’s assertion coming at this time is crucial to the threat discussion even though the euro is not the most used as the world’s reserve currency.
It is also significant as the Governing Council – the main decision-making body of the ECB – is set to give its green light for the Bank to start a formal investigation phase focusing on the design of a digital euro this July, according to Fabio Panetta, a Member of the Executive Board of the ECB, in a June 14 interview.
Panetta notes that a possible threat from cryptocurrencies and other central bank currencies wasn’t why they started an analysis and will possibly start a digital euro project. Rather, it is because people are paying and buying more digitally and less with cash.
“So people are using the means of payment backed by the central bank less and less,” he said. “We’re moving into a digital era, so by introducing a digital euro we would be changing how people can access our balance sheet and use our means of payment.”