Contribution by Philip R. Lane, Member of the Executive Board of the ECB, to IMF Finance & Development Magazine

The digital euro project has a simple motivation: to ensure that people in a digital world retain the option to make or receive payments in central bank money. Supplementing physical cash with digital cash will support the modernization of the traditional two-tier monetary system that allows both cash and bank deposits as a medium of exchange.

The evolution of the two-tier monetary system over the past 300 years has provided a strong foundation for the operation of the broader financial system and has enabled central banks to deliver price stability effectively. While it is possible to theorize about alternative monetary systems in which central bank money plays only a wholesale role, prudence suggests that the retail role should be preserved, including through the introduction of a digital euro.

Central banks have a mandate to safeguard monetary stability in all…