The european central bank has identified several scenarios that would require it to launch a digital euro and said it was confident of overcoming any challenges as it started a six-month public consultation on the idea.

By publishing a 50-page report examining the case for creating a digital currency, which it defines as central bank money available digitally to all parties, the ecb is trying to stay ahead of the rapidly changing world of digital currencies and payments.

Europeans are increasingly turning to digital in the ways they spend, save and invest, said christine lagarde, ecb president. our role is to secure trust in money. this means making sure the euro is fit for the digital age. we should be prepared to issue a digital euro, should the need arise.

The ecb said it was considering two design approaches, while adding it was too early to commit to a specific design. the first, centralised one would record all digital euro transactions in the central banks own ledger. in a second, decentralised one, the ecb would set the rules for transactions to be settled and recorded by supervised intermediaries.

Central bankers have become increasingly interested in the relatively new world of digital currencies, particularly since facebook announced a plan to launch one called libra that has the potential to overhaul the way money works.

Other central banks, including swedens riksbank, the swiss national bank and the peoples bank of china, are further ahead of the ecb with equivalent projects of their own, adding to concerns that the eurozone could lose control of its money supply.

Ecb officials believe the chinese central bank is potentially a couple of years away from launching its own digital renminbi after it already conducted large-scale experiments.

The ecb outlined potential scenarios that would require the issuance of a digital euro. these include higher demand for electronic payments that creates a greater need for a risk-free digital means of payment, as well as the potential that a cyber attack or pandemic disrupts the existing payment system and requires a digital euro to serve as a back-up. another scenario is a further sharp drop in cash usage that leaves some people financially excluded.

Finally it examined the potential rapid adoption of other private or public digital currencies including those issued by foreign central banks that could threaten european financial, economic and, ultimately, political sovereignty.

The ecb said a digital euro also poses challenges, but by following appropriate strategies in the design of the digital euro the eurosystem can address these.

One concern raised about a digital euro is that in a financial crisis people may shift money out of commercial banks into a digital currency backed by the ecb that is seen as a haven. others worry about a loss of privacy if, unlike cash, the central bank can monitor usage of digital euros.

To mitigate the impact on the banking system, the ecb is considering remunerating digital euro holdings at a variable rate over time, possibly using a tiered remuneration system, or by limiting the quantity of digital euro that users can hold and/or transact.

The ecb said the ability to set the remuneration rate on a digital euro could also reinforce monetary policy but, it added, the strength of this mechanism is not clear cut. it said the digital currency could allow offline payments using bluetooth technology but also warned: a digital euro may attract cyber attacks.

Highlighting that the ecb governing council had not yet taken a decision on whether to introduce a digital euro, the ecb said it would do so when the public consultation finished in mid-2021. it added: experimentation will start in parallel, without prejudice to the final decision.