Central bank digital currencies are not needed as digital cash replacement, stated European economists Peter Bofinger and Thomas Hass.
If they should stop, said the pair of researchers, who argued in a release today that the whole enterprise of producing substitutes for digital cash is in danger of falling for it lacks an “obvious justification.”
The researchers argue that central banks have been very confused on CBDCs as a medium of exchange when private banks have already offered benefits like deposit insurance and a wide range of products.
Rather than CBDCs that act as a medium of exchange, they argued for supranational digital currencies that serve as a store of value in the international system.
A CBDC can be seen as “a deposit with the central bank that is used within the framework of existing real-time gross settlement (RTGS) payment systems,” wrote Bofinger and Hass. “However, it can also be understood as an independent payment system that operates in parallel to the existing system using deposits held with the central bank.”
It can be further subdivided into different balances with a central bank that can be used for payments or as modes of payment and into retail or wholesale CBDCs.
Looking into the most researched designs, the authors find that it will be difficult for central banks to launch a CBDC without having to interfere with the market.
“They have to show that the objectives which they pursue with CBDCs are currently not satisfactorily met by the private providers,” wrote Bofinger and Hass. “And even if public goods like financial stability or stability of the payment system are not optimally met, it is not obvious that CBDC is the adequate solution.”
Furthermore, they asked, “why would a citizen want to switch from a private bank or payment system to a nationally run one when they already have insurance on their deposits? Surely not because a central bank can offer more products than a private bank competing for customers,” they asserted.
From the author’s perspective, maybe the best type of CBDC is mainly any central bank talking about out of fear of disintermediation. It would be a CBDC not meant for facilitating payments but for storing value.
Lastly, they contended that CBDCs are too small in scope in an international economy.
The authors then ended with a warning to central banks:
For up-to-date Cryptocurrency, Blockchain, and Crypto-mining news, please join our Telegram Channel.