ECB to Recalibrate Monetary Policy Instruments as Digitalization Arrives
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The Governing Council has agreed on modifying the European central bank’s monetary policy instruments "to contribute to preserving favourable financing conditions over the pandemic period," the financial regulator said on December 11, 2020.

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The ECB says with the recalibrated monetary tools it wants to support the flow of credit to all sectors of the economy. The Eurosystem will reportedly extend its support for new technologies, including digitalization of the financial market and fintech products.

According to an official press release, the Eurosystem is also enhancing its research on the potential issuance of a digital euro. This does not, however, imply any intention to crowd out the private sector’s role in providing payment services.

"This does not, however, imply any intention to crowd out the private sector’s role in providing payment services," the ECB emphasized.

The ECB claims that regulated private intermediaries "would be best placed to provide front-end solutions" to build new business projects on a digital euro. In October 2020, Fabio Panetta, Member of the Executive Board of the European Central Bank (ECB), outlined at the ECB Conference "A new horizon for pan-European payments and digital euro" a number of scenarios where usage of a digital euro could be beneficial.

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According to Panetta, digital currencies could be vital if people would become reluctant to use cash or other electronic payment methods could become unavailable "owing to natural disasters." However, Panetta also says there are several challenges that could come alongside the introduction of a digital euro. The potential digital currency might have both technical issues, such as cyber risks, and legal ones, including an impact on monetary policy.

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