EU Central Bank Executive Shares the Potential Upside to a Central Bank Digital Currency (CBDCs)
After the rise of Bitcoin, several central banks around the world have started to talk about something often known as a Central Bank Digital Currency (CBDC). These tokens would act as digital money that would be emitted by the Central Bank.
Now, an official from the European Central Bank (ECB) has affirmed that there are several benefits in using CBDCs. He also affirmed that people should be cautious, but that the benefits existed nevertheless.
Vitas Vasilauskas, currently the chairman of the Board of the Bank of Lithuania and the council of the ECB, made his speech at the Bank of International Settlements’ Reinventing Bretton Woods Committee. The speech was done during a conference that was focused on the global economy.
During the talks, he affirmed that CBDCs could be used as a medium of exchange by the banks, being as much a way to pay for goods as a way to store value. Therefore, he believes that they will be more akin to fiat currency than with the cryptocurrencies, as some Bitcoin fans would have wanted.
He also affirmed that they could be offered in two ways. They could be used by retail investors or more focused on institutions. One of the benefits named by him is that they could mean more efficiency in making payments as they are digital. They could also be considerably more liquid and reduce counterparty risks.
It was also affirmed that a CBDC could be used in order to transmit monetary policies like lending rates. He did warn that the amount of cash in circulation was already declining in some countries, so this means that if people needed financial entities to make simple payments, they could end suffering from more financial exclusion than they already do.
This way, a retail-focused CBDC could be used to allow people to have access to the central bank and its money without having to use a third-party financial institution like a private bank. This, the executive believes, can have a very positive and lasting effect on the financial stability of several countries.
Another important point cited by him is that it would be easier to track money laundering using a digital currency, as there would be more records of any transaction. Paper money is still one of the best ways to use money undetected and this could change.
Earlier this month, the European Central Bank decided to release a report that was intended to outline the impact of how digital currencies can affect the economy of countries and their policies.
However, it was affirmed that cryptocurrencies are still not in the level that they would need to be in order to fulfill any real function as cash for a large share of the society.