University Of Luxembourg Researcher Says Central Bank Cryptocurrencies Concept Is Convo Worthy
Postdoctoral Researcher Believes That The Concept Of CBDCs Are Challenging To Launch, But Too Good To Ignore
Hossein Nabilou is a postdoctoral researcher at the Facility of Law, Economics, and Finance at the University of Luxembourg. Recently, after studying central bank digital currencies (CBDC), he published his findings within a report called “Central Bank Digital Currencies: Preliminary Legal Observations.” Much of the information focused on the challenge that the European Central Bank (ECB) could face in the launch of this type of currency, though he also noted that the idea is too attractive to ignore.
Based on the information available in this research, Nabilou points out the substantial impact that cryptocurrency has made in the banking industry. He believes that the first characteristic to elicit attention from banks was their functionality, though many banks were also worried that cryptocurrency could threatened the monopoly that they had on money circulation. They also feared the influence that cryptocurrency could have on the current security held by the financial systems in place.
Nabilou deduces that the growing popularity of cryptocurrency is ultimately what led to the introduction of CBDCs. Even though there are been many failures in launching state-backed coins and plenty of skepticism about cryptocurrency as a whole, many central banks are examining the technology that supports these digital assets. One of the most popular cases has been that of the Venezuelan Petro, though there are many locals that believe that this token is not to be trusted any more than the hyperinflated bolivar. There have been many banks toying with the idea of adding a CBDC to their product line.
Ultimately, if the ECB chooses to bring in digital currency to the market, there’s a chance of causing banking disintermediation. It would offer the central bank’s balance sheets as public access to customers, and there would ultimately be no reason for anyone to hold a balance at a commercial bank. As such, the banking sector could face major instability.
Nabilou adds that this type of move would make credit allocation centralized, and would introduce free competition, which would weaken the concept of an open market economy completely. It would also violate the constitutional constraints that the EU has already dictate. Most likely, a CBDC launch is unlikely from the ECB, unless new regulations are established to govern them.
There are several banks that have shared the view expressed by Nabilou on CBDCs in general, like the Central Bank of South Korea. This financial institution actually issued a warning against this type of digital currency, adding that their use could be a catalyst for massive withdrawals from private institutions. The withdrawal would tighten the amount of liquidity held in banks and could cause a massive hike in interest rates.