Bitcoin and cryptocurrency prices have soared over the last few weeks, pushed on by a raft of positive news and boosted by the U.S. election.
The bitcoin price has also climbed after central banks around the world, including the U.S. Federal Reserve last month, have signalled they are increasingly looking into digitalizing their currencies, potentially opening up the bitcoin and crypto market to millions.
Now, bitcoin and crypto watchers are braced ahead of the European Central Bank’s (ECB) two-day annual forum, beginning today—with ECB president Christine Lagarde, who last month said the ECB “should be prepared to issue a digital euro,” set to speak about the “implications of fundamental global changes for central banks.”
Lagarde will open this year’s online event and is set to be joined by Fed chairman Jerome Powell and Bank of England governor Andrew Bailey, with globalization, climate change and digitalization on the agenda.
Cryptocurrency traders will be on the look out for remarks from senior central bankers as to how central bank digital currency (CBDC) research and development is progressing and how governors expect CBDCs to impact existing digital currencies, like bitcoin.
“Central bank digital currencies will be a net positive for bitcoin,” Richard Paulsen, the chief executive of Oslo-based Arcane Media and Research, said via email, explaining how he expects CBDCs to affect bitcoin and cryptocurrency markets and use.
“The structure of a CBDC, in the retail markets, will definitely be in the form of a token. This also means that for it to work as a payment method, payments solutions have to be changed from today’s analogue world, to a truly digital one. This will make it much easier for e-commerce to switch between CBDCs and bitcoin on each individual transaction.”
Last month, Lagarde said she wanted to make “sure the euro is fit for the digital age,” in a statement alongside an ECB announcement that it was “[intensifying] its work on a digital euro.”
CBDCs have become a hot topic among central bankers over the last couple of years, with Facebook’s plans for its bitcoin-inspired libra cryptocurrency pushing countries around the world into action amid fears a popular private digital currency could undermine monetary policy. The coronavirus pandemic, resulting in increased central bank intervention in markets, has appeared to spur CBDC interest.
“The economic devastation of Covid-19 and collapse of old systems has meant fast tracking any innovative technology that can help GDP growth and digital currencies and stablecoins fit perfectly into this narrative,” said Keld van Schreven, managing director and co-founder of digital asset investment company KR1.
“This is an unstoppable trend,” said Nick Jones, the chief executive of Edinburgh-based bitcoin and cryptocurrency wallet and payments platform Zumo. “The key to the success of CBDCs is that they exist on the public blockchain so that there is interoperability between CBDCs and the potential to revolutionise cross border transactions isn’t lost.”
The ECB has joined most other major central banks in announcing research into CBDCs, with the launch of China’s digital yuan, now being trialled around the country, potentially threatening the international dominance of the dollar and the euro.
“Technology and innovation are changing the way we consume, work and relate to each other,” Fabio Panetta, chair of the Eurosystem High-Level Task Force on central bank digital currency, said last month. Panetta will be chairing a session on monetary policy challenges from falling natural interest rates at the ECB annual forum.
“A digital euro would support Europe’s drive towards continued innovation,” Panetta added. “It would also contribute to its financial sovereignty and strengthen the international role of the euro.”
Elsewhere, Fed chair Powell has said that while the Fed has made no decision yet on issuing a digital currency, it is conducting research—and is prioritizing getting “it right” over being first.
“We do think it’s more important to get it right than to be first and getting it right means that we not only look at the potential benefits of a CBDC, but also the potential risks, and also recognize the important trade-offs that have to be thought through carefully,” Powell said in a panel discussion on digital payments hosted by the International Monetary Fund in October.