With the popularity of digital payments and the decline in the use of cash, the debate among central banks about whether they should issue their own electronic currencies is also very hot.
On July 30, 2018, the Bank of Spain published a report onDigital Currency Report, in this report, the Bank of Spain defined the concept of central bank digital currency (CBDC), pointing out the similarities and differences between it and the two main reserves of the central bank, namely cash and bank deposits. In addition, the report discusses the benefits of introducing a CBDC as well as some possible risks.
The report defines CBDC as a public digital currency issued by the central bank. They share some of the same characteristics as private digital currencies: they are kept on record in ordinary correspondent accounts, and can be moved by bank transfer or debit card without the use of cash. The difference between it and the bank's two main funds (savings and cash) is shown in the table below:
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The benefits of introducing central bank digital currency
Potential reasons why some central banks may consider introducing CBDC, the report believes that there are four main reasons:
1. Reduced demand for cash in certain regions makes it less expensive to issue digital currencies. However, the number of banknotes in circulation in most economies (including the Eurozone) is still growing, so there seems to be no reason to issue a CBDC in most advanced economies at this time.
2. Some aspects of the payment system's operation may be improved. Current research has concluded that the introduction of a CBDC can increase the productivity of payment system operations. However, it is not clear why such improvements necessarily come from the introduction of public digital currencies, rather than the expansion and improvement of current private digital currencies.
3. Improve monetary policy transmission.
4. In addition, CBDC can also promote other economic policy objectives, such as combating tax fraud and money laundering. But the premise is that CBDC is a non-anonymous public fund and cash disappears. At present, there are still many difficulties in replacing cash with CDBC in helping the central bank control the real economy and foreign exchange exchange.
One argument that could be considered when assessing the introduction of a CBDC, the report argues, isThe third point: that CBDC can improve the transmission of monetary policy by better controlling the market returns that savers and borrowers must face.secondary title
Risks of introducing a central bank digital currency
The uncertainty and related risks of introducing CBDC also exist at the same time:
The first risk is technical risk.If the CBDC is not anonymous, the central bank needs to spend a lot of costs on related infrastructure, operational requirements, and regulatory requirements; in another case, the CBDC is as anonymous as cash. Although the infrastructure cost is reduced, it still faces technical problems: first, it needs to be Encrypted currency technology adapts to relatively different environments; second, the underlying technology is not stable, and there are risks in network attacks and fraud. Either way, it has the potential to cause considerable disruption to the entire economy.
The second risk is financial stability.The introduction of new risk-free assets (especially interest-bearing digital currencies) will inevitably affect the profitability of the banking industry and may encourage depositors to withdraw funds from regular accounts at the central bank. In bank panic events, these phenomena are more likely and more intense. Without prior experience, it is difficult to quantitatively estimate the impact of these considerations on financial sector and bank credit stability.
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