In a recent testimony at a European Parliament committee hearing on central bank digital currencies (CBDCs), Ordóñez made a bold case for how a digital euro issued directly by the European Central Bank (ECB) could revolutionize and stabilize finance.
“Banking crises could be a thing of the past if central banks issue their own digital currencies,” declared former Bank of Spain Governor Miguel Ángel Fernández Ordóñez during a November 28 hearing.
His core argument is that bank deposits are fundamentally risky while state-backed currencies are not. As Ordóñez puts it, “Digital euros are euros, but bank deposits are not euros. Deposits are just promises to pay euros.” When banks struggle to fulfill those promises in a crisis, trouble ensues across the whole economy. On the other hand, a natively digital euro would provide people and businesses guaranteed access to electronic central bank money.
Moreover, Ordóñez, a member of the Socialist Workers Party, believes CBDCs could enable a more libertarian outcome for banks. “That deregulation would have a very important impact on growth because banking is the most protected sector,” he told European parliamentarians.
Freed from managing liquidity risks with a digital euro in place, regulations on lending and other key activities could be peeled back, he said. Taxpayer-funded bailouts may no longer be necessary either.
“So the central bank wouldn’t have to change interest rates and we will be able to take monetary policy decisions without having to worry about the impact on banking stability.”
“There are other effects, for example, dealing with the centralization of financial decisions or separating monetary policy from government finances. And there’s a very important effect for Europeans because if we had a digital euro, then we could have a real European monetary union. What we have at the moment is just physical money, coins, notes,” Ordóñez said.
Still, the feasibility and merits of CBDCs are up for debate . Fellow expert Ignazio Angeloni, a current board member of the ECB, argued that by issuing a digital euro, “a regulator-supervisor [like the ECB] should not be a market participant.” The rules of fair competition would be violated.
German Social Democrat lawmaker Joachim Schuster also wondered if a digital euro is worthwhile if consumers faced hassles like account limits. “What’s the point of this for the consumer … do you think it would actually be used?”
Yet the former Spanish central banker remains unfazed. As the key legislator guiding negotiations in the parliament, Stefan Berger, made clear: “I want to create a situation where the European Parliament makes it obvious that we want a digital euro.”
The ECB has yet to make a decision on issuing a digital euro, although the bank has recently begun preparing for a potential implementation after a phase of investigation.
Ordóñez has long been fascinated by the concept of CBDCs. In a 2018 speech , the former central banker, who was in post at the Bank of Spain between 2006 and 2012, argued that (then) recent advances in computing capacity enabled central banks to issue digital money.
The former central banker has also stuck remarkably close to the arguments he made five years ago. This hypothetical digital money would radically transform banking, because such “Secure Money” deposited in central banks would avoid banking crises that currently impose immense social costs. Private banks would lose key privileges and protections, and credit markets could be fully open to competition and innovation.
This “pandora’s box” could force private banks as we know them to either transform or disappear, he said, though such systemic change usually occurs slowly over time. To date, this has not happened. Although CBDCs are in a relatively early stage of development across the globe, with only a few countries fully rolling them out.
In the case of Nigeria, one of the first to issue a CBDC, limited enthusiasm has characterized the project’s reception thus far.