 Hello and good afternoon to you all. My name is Dara Lawler and I am senior economics researcher here at the Institute of International and European Affairs and it is my great pleasure to welcome you to this webinar here today. We're delighted to be joined today by Dr Catrine Assenmacher who is the head of the Monetary Policy Strategy Division at the European Central Bank who's been very generous to take time out of our busy schedule to speak to us today. Today we're going to discuss the topic of central bank digital currencies and specifically the question of whether we will see the introduction of a central bank digital currency for the Euro area, something which may have seemed like it was out of a lifetime movie maybe 20 or 30 years ago but is very much a realistic prospect now in terms of the advancements in technology. Catrine will speak to us for about 10 to 15 minutes and then we will go to Q&A and discussion with you or audience. You'll be able to join the discussion using the Q&A function on Zoom which you should see at the bottom of your screen. Please feel free to send in your questions throughout the session as they occur to you and we'll come to them after Catrine has finished her presentation. You can also participate on the discussion on Twitter using the handle at IIEA and please feel free to do so as well. A reminder that today's presentation and the question and answer session afterwards are both on the record. So I will now formally introduce Catrine and hand you over to her to get us started. So Catrine Assenmacher has been the head of the Monetary Policy Strategy Division of the European Central Bank since November 2016. Prior to that she from 2010 to 2016 she led the Monetary Policy Analysis Unit at the Swiss National Bank and she has published various articles in international academic journals on the subjects of monetary policy and time series econometrics. Dr. Assenmacher holds a doctorate on Diploma in Economics from the University of Bonn where she also received her habilitation. So we're absolutely delighted to be joined by you today. Catrine and the floor is yours. Thank you very much Dairie for the kind introduction and also good afternoon to all of you from my side and I'm thank you very much for having me in the webinar. I prepared a few slides so which I will now share. So I hope you're able to see them. So yeah, let me first say all of what I'm saying today are my personal views and I'm not speaking in any official rule for the European Central Bank and I'm also not a member of the digital euro project. So as you may know the ECB has started to work on a project for possible introduction of a digital euro and the question that often arises is why does the ECB wants to do that? So first argument is that in an age where cash is getting increasingly sidelined and many people pay electronically and you also have e-commerce where you cannot use cash in any way, a digital euro would act as a monetary anchor and would preserve public access to central bank money. So currently for the general public cash is the only way how you can access central bank money. Of course you have euros on your bank account but this is not central bank money it's instead a liability against the commercial bank and this liability translates one to one into official money so you can always redeem your account in cash but if cash is not any useful for transactions anymore in the future what would be the monetary anchor that ensures this one to one convertibility and there a digital euro could play a role in ensuring access to public money in an age of declining use of cash and such a digital euro would be accessible to all users in euro area countries on the same terms. So currently of course banks have different conditions in the euro area and also payments are not all euro area citizens are equally well served in terms of digital payments and that's the second objective for a digital euro. So a digital euro would strengthen the strategic autonomy of the euro area by increasing the independence from non-european payment solutions. So currently if you do an electronic payment yeah it's very likely that this payment is processed by a non-european company so Visa Mastercard are American companies and there is not a European solution so these payments go through other countries outside the euro area. So European payment solution would increase economic efficiency and would provide an alternative to private providers that might dominate the payments landscape. So it would be kind of an outside option and the digital euro would ensure that payments are affected on the same terms across the euro area. So currently it's that private payment solutions tend to favor the big countries because for these payment companies it's more attractive to go into a big country and offer their services at favorable terms there but smaller countries at the periphery of the euro area are often less well served and this is also something a digital euro would be able to address. So I would like to spend a little bit of time on definitions. So what distinguishes a central bank digital currencies from other forms of digital money or assets. So first there are liabilities of a central bank and I already referred to cash. So if you hold in your area bank note it's on the balance sheet of the ECB so it's a liability of the ECB but it's physical and it can be held by the general public. There is a digital central bank liability which is bank reserves but this is not available to the general public it's only available to banks. So only banks can act as a counterparty to the ECB and can hold an account at the ECB where they can hold digital central bank money. So digital euro would be a complement to cash and these central bank deposits as it would be digital and it could be held by all citizens across the euro area. Digital money on your bank account it's a liability of a private entity. There are other forms of digital money but all of them are private liabilities of a private entity. For example there is this e-money so there was a time when you had a chip on your card. There are other forms of e-money providers and there are also stable coins which are digital money that is backed by reserve and again here you have a claim against the private entity that backs this claim with short term assets but it's not of the same safety as a central bank money. And finally there are crypto assets which are digital but which are not even a liability because they are generated by a computer algorithm and there is nothing behind the valuation of it's just the appreciation of this money but there is no issue whether it can be held liable or no asset behind this crypto money. So these are very different forms of assets and CBDC would be in that form like cash in a digital form whereas the other two monies are not like cash. So the ECB has launched a project on the digital euro it was launched in July 2021 when the governing council decided to launch an investigation into potential issuance of a digital euro. So there is a project team taking care of that there is a governance of the project team and this project team has looked at different use cases and we have published various reports on focus groups on what citizens think of that what merchants would like to have of a digital euro. We have published several reports on how we think a digital euro could be designed in what regards online offline availability in what regards privacy how it would be transferred between users and also from the central bank to users. And yeah last quarter of 2022 we made a little bit more explicit how we see intermediaries in this setup. So the digital euro would not allow you to directly hold digital euro with the ECB but it would be an intermediate model where banks take care of the onboarding of customers and the central bank provides digital euro to the bank so it will be distributed like in the current two tier system so it will not be bypassing the banks but banks would do the handling and the account management and the central bank would provide the digital euros to the banks. Yeah of course there are a lot of technical discussions going on like who in this scheme would be compensated for which services what costs would the central bank be preparing what costs would bank bear. It's clear that for consumers the use of the digital euro would be cost free. So if you go to a shop and you would like to pay digital with digital euros it is envisaged that it should be legal tender so that merchants and shops are required to accept digital euro and that it would be cost free for users. But of course this would mean it would not be cost free for everybody in this payment chain but just for consumers. So now we are at a point where we will wrap up this first phase of the project. The governing council will have a meeting this month and decide what the next steps would be whether the project should continue and move to the next phase which would be an experimentation phase with more concrete prototyping experiments testing or whether this would be stopped. So frankly I do not expect that it will be stopped but we will have the discussion in a few weeks time and then there will be a press release and information about how the next steps would look like. So of course it's a big decision to go digital with the central bank digital currency. There are a few central banks that have already done it but these are probably not good pattern for major central banks. So currently Bahamas and Nigeria have a central bank digital currency but these countries are also looking at central bank digital currency to make the general payment system more efficient which is not so much an issue in the euro area. CVDC creates many opportunities. So first you can introduce very innovative payment services by linking payments to conditions. So a digital euro would allow for some programmability although it would programmable payments it would not be programmable money because money needs to be fungible and needs to be available for purchases of different services but of course banks could offer or payment service providers could offer additional features that are tacked on to these digital means of payment. It would allow for a diversification of financial services and service providers. So currently only registered banks can interact with the ECB. It's a visit that's also payment providers can distribute digital euro. So the range of institutions that can provide these services would be broader than just traditional banks and there are also many hopes that digital currencies would facilitate international payments. That said there are of course limitations to this facilitation of international payments because first systems would need to be interoperable and second there is also a lot of regulation on the international level especially with counter terrorist financing and anti-money laundering laws which slow down international payments and make margins on these payments fairly loud. These would not go away just by introducing digital currencies. But there are also a lot of challenges to the financial system arising from digital currencies. So first the digital currency is an offer from the central bank so you could expect that maybe depositors start to shift their deposits from the banking sector into a digital currency that's the liability of the central bank and therefore inherently safer than the bank deposits and this could lead to an increased risk of bank runs. However also in normal conditions the fact that deposits migrate away from the banking system could have an implication for monetary policy transmission and implementation. So deposits are considered as a very safe funding source for banks, a low cost safe funding source. If this source becomes more mobile and moves into another asset then bank funding could become more expensive and this could have implications for credit creation and finally the financing of investments in the real economy. If that were to be happening very abrupt this could of course create stress in the financial system because liabilities would shift from one sector in the financial system to another entity. It could also create challenges for monetary policy implementation. So in implementation you have to forecast liquidity demand. If this liquidity demand becomes more uncertain because of the digital euro it would controllability of the short-term interest rate would be more difficult and it could also lead to an increase in the balance sheet of the central bank. So especially in the past with high large balance sheets and constraints on safe assets this could mean that the central bank is taking even more safe assets on its balance sheet. And finally as I already said there is a related risk of bank runs. If a bank comes into trouble depositors could much more easily shift into a digital currency than what they can now do with shifting into cash which comes with risk of theft storage costs and so on. So the extent of these effects depend on the one hand on the degree of adoption of the digital currency. So how much users would like to hold off these new assets but also on the speed of adoption. So the faster users move into a digital currency the more disruptive it would be for the banking sector. Of course at the moment we don't know very much so all of these scenarios need to take care of the future save of the financial system. So we are not talking about today's financial system but we are probably talking about the financial system in five years time and the payment landscape is changing very very quickly and new forms of payments new players are coming into the market and so this could be something that changes the counterfactual significantly. It will depend on the design and the framework for CBDC so there are a lot of key features that still need to be determined like privacy that how much focus it is on the retail whether you have folding limits caps for transaction and so on and finally on the adoption and usage. So at the moment we have very limited insight on potential demand so this is something that has not been around before. We can try to gauge the potential demand but these demand estimations are fraught with inherent uncertainty. So a lot of uncertainties but yeah we are investigating it at the moment and I think I stop here and hand back to today.