Until relatively recently, the emerging economies have been considerably more dynamic, partly offsetting the greater slackness in the more industrialised countries such as the United States. However, doubts over the real ability of these economies to continue posting robust growth rates amid the virtual stagnation of the more advanced countries are ever greater. The increase in oil and commodities prices is the second of the basic factors behind recent developments in activity and inflation at the global level, despite the relative easing since the summer. The effects of these price rises have been fully felt in the more advanced economies, while in the emerging economies the pass-through of higher energy costs is proving slower and is still far from complete. BIS Review 122/2008  1  But it is the third of these factors that will most likely influence developments in the world economy in the coming quarters. I refer here to the severe worsening of the financial crisis in United States and in much of Europe, and to the turmoil on international financial markets. Somewhat more than a year back now, when the US subprime mortgage crisis broke, there was great uncertainty over the scope and duration of the episode then beginning. Today, there is unfortunately no doubt that we are facing a global financial crisis of enormous proportions. Although at first the difficulties appeared to be confined to just a few investment funds and relatively minor US mortgage institutions, the overall number of banks affected has since widened considerably.
This is because making a payment is about more than just exchanging money for goods and services: it is a form of social interaction made possible by money, which has been described as “the most universal and most efficient system of mutual trust ever devised”7. Finally, a digital euro would increase privacy in digital payments thanks to the involvement of the central bank, which – unlike private suppliers of payment services – has no commercial interests related to consumer data. Ensuring privacy is an essential element of modern democracies and part of our European values. Payments must also respect people’s right to privacy in the digital era, and the design of a digital euro would have to respect this principle. This is a core aspect we will look at – indeed, we have already started exploring possible ways of enhancing privacy.8 At the same time, payments in a digital euro – just like any form of payment – would have to respect the rules on countering money laundering, the financing of terrorism and tax evasion. This would enable public authorities to combat any illegal activity more effectively. To summarise, the digital euro would still be a euro, only in digital form. It would both shape and promote the digitalisation of payments, while reducing the associated risks. This would in turn support the ongoing digitalisation and modernisation of the European economy.9  Why might we need a digital euro? A digital euro would be critically important in a number of scenarios, which are analysed in our report.