The European Central Bank (ECB) says that the introduction of digital cash in the form of central bank digital currencies (CBDCs) appears to be the “only solution” that will ensure a “smooth continuation” of the current monetary system.
The comments were made as part of a series of ECB working papers, published in August, looking at monetary policy and financial stability in relation to CBDCs, drawing on information from 150 academic papers on the subject.
The article began with the observation that interest in “the economics of money and payments” has increased dramatically 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 noted:
“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 contributing factors.”
However, the document concludes that the introduction of CBDCs is “the only solution to ensure a smooth continuation of the current monetary system”, since physical money loses its economic “fitness” and cryptocurrencies and BigTech (large digital platforms) continue entering the market. financial system, highlighting:
“There is no regulatory alternative that promises to remove the threat to the two-tier 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 right level of CBDC “uptake” was underlined, and the authors also discussed potential regulatory actions that could help CBDC achieve their goals.
The document also dismisses concerns that CBDCs could cause a reduction in the supply of credit, 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 was end-user preferences for CBDC features.
Related: Official Explains Why China CBDC Shouldn’t Be As Anonymous As Cash
This is the second document dedicated to crypto issues published by the ECB this month. Previously, he compared the cross-border payment potential of CBDC, Bitcoin (BTC), and stablecoin, and came out in favor of CBDC.
The paper is written by Toni Ahnert, ECB Research Economist, Katrin Assenmacher, Head of the ECB’s Monetary Policy Strategy Division, and Financial Research Division Economist Peter Hoffmann, among others.