Digital Euro Could be More Popular Beyond EU's Borders: Lagarde

A digital euro "could well be" more popular beyond the European Union's borders, according to European Central Bank (ECB) President Christine Lagarde.

The digital version of a euro should be "borderless" and it should be "regulated and properly supervised" Lagarde said, responding to a question while speaking at the Atlantic Council's Frankfurt Forum on U.S.-European GeoEconomics on Wednesday.

"But it can facilitate cross-border payments in a big way, which is why between the United States authorities, the European authorities and others beyond that, we need to compare notes," Lagarde said.

The ECB is halfway through a two-year investigation into a digital euro for retail payments, and although it has yet to make a decision on issuing one, the EU Commission responsible for proposing new legislation, is preparing a digital euro bill. The ECB has also picked five payments providers to work on prototypes for digital euro apps.

Although Lagarde did not directly address the implications of a digital euro potentially being adopted by a country as an official currency – in the same way that El Salvador and Ecuador use the U.S. dollar – the ECB has previously addressed the risks of currency substitution associated with a digital euro when used beyond EU borders.

"Similar design features would have to be applied to the use of a digital euro by non-residents. This would stop a digital euro replacing other forms of investment and facilitating currency substitution in countries outside the euro area," Fabio Panetta, an ECB executive board member, said in a 2021 speech. "In any event, international cooperation on design, cross-border use and interoperability would be key to reap the potential benefits of CBDCs for cross-border payments, while addressing risks to the international financial system."

Responding to a question on why EU residents would be interested in a digital euro when digital payments are already widespread in the bloc – where cash usage is on the decline – Lagarde reiterated the ECB's stance that a central bank digital currency should be something the ECB should be ready to make available if people want it.

Read more: ECB Exploring Distributed Ledger Technology for Interbank Settlements: Panetta