A Digital Euro: Monetary Policy Considerations

This article discusses the possible consequences for monetary policy implementation, transmission and the monetary policy stance of issuing a central bank digital currency. The European Central Bank (ECB) is preparing a possible introduction of a digital euro, which would promote public policy objectives, offer a digital retail payment solution available to everyone, and ensure that the monetary system keeps up with digital advances. We argue that for realistic take-up scenarios and with appropriate design features, demand for a digital euro would not have any significant impact on the monetary policy stance and its smooth transmission. Moreover, the risk that a cash-like CBDC undermines the profitability of the banking sector seems limited. Overall, we conclude that, with appropriate provisions in place, the central bank would be able to conduct monetary policy with a CBDC broadly in the same way as it does now.