The European Central Bank (ECB) states that the introduction of digital cash in the form of a central bank digital currency (CBDC) appears to be the “only solution” that will ensure the “smooth continuity” of the current monetary system.
These comments are part of a series of ECB working papers, published in August, discussing monetary policy and financial stability in relation to CBDCs, and that gather the opinions of 150 academic works on the subject.
The document began with the observation that interest in “the economics of money and payments” has increased tremendously in the last 15 years and has expanded beyond a narrow academic circle.
After an examination of that process, the document presents the reasons for the creation of a CBDC and the thorny privacy issues related to it.. The authors note:
“While consumers tend to place a high premium on privacy in surveys, in practice they tend to give away their data for free or for very small rewards. […]. In analyzing the roots of this apparent dichotomy, the researchers point to several factors that contribute to it.”
However, the document concludes that the introduction of CBDCs is “the only solution to ensure the smooth continuity of the current monetary system”, as physical money loses its economic “suitability” and cryptocurrencies and BigTech continue to make their way into the Finance system, pointing out:
“There is no regulatory alternative that promises to remove the threat to the layer 2 monetary system. Since cash is only available in physical form, it is by construction not ‘fit’ for the digital age.”
The importance of central banks reaching the appropriate level of “adoption” of CBDCs was highlighted, and the authors also looked at potential regulatory measures that could help CBDCs achieve their goals.
The document also dismisses concerns that CBDCs could cause credit supply to shrink, noting that claims that CBDCs could be a potentially disruptive force were unfounded. Privacy was identified as an area where more research is needed, as were end-user preferences for CBDC features.
This is the second document dedicated to cryptocurrency-related issues published by the ECB this month.. Previously, he compared the cross-border payment potential of CBDCs, bitcoin (BTC), and stablecoins, and came out in favor of CBDCs.
The authors of the paper are, among others, Toni Ahnert, Research Economist at the ECB, Katrin Assenmacher, Head of the ECB’s Monetary Policy Strategy Division, and Peter Hoffmann, Economist at the Financial Research Division.
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