Analysts at the European Central Bank (ECB) believe the introduction of a central bank digital currency (CBDC) is the only option for transforming the traditional monetary system.
The ECB analysts emphasize that digital cash introduction in the form of a CBDC is the only acceptable option for today’s transformation of the existing monetary system. This is stated in the ECB’s working paper, which includes an analysis of more than 150 scientific studies in this direction.
The paper’s authors are Toni Ahnert, Research Economist at the ECB, Peter Hoffmann, Economist in the Financial Research Division, and Katrin Assenmacher, Head of Monetary Policy Strategy Division at the ECB. They studied and structured various literature on the economics of CBDCs and concluded that digital currency is “the only solution” for transforming the traditional monetary system.
The analysts highlight the potential merits of a CBDC:
- covering the funding gap;
- improving competition;
- increasing welfare;
- ensuring financial stability;
- reducing the risk of disintermediation.
According to analysts, CBDCs have the potential to replace paper cash so that banks do not experience shortages. The paper also stresses the need for a retail CBDC because the public’s need for digital cash is growing rapidly. And since there are no acceptable alternatives to CBDCs, which would fall under the regulatory rules, the ECB analysts are calling to accelerate the process of digital currencies introduction.
To recall, the ECB is preparing to begin developing and testing the digital euro for EU members in 2023, stressing the readiness of the population to accept the initiative. And earlier, analysts of the agency recognized CBDCs as the best technology for international financial transactions.
90% of the world’s central banks are studying the possibility of creating and issuing CBDCs. Thus, U.S. Fed experts have considered the possible impact of retail CBDCs on monetary policy and came to the conclusion that the risks exist, but they can be managed. At the same time, the U.S. Treasury Department has conducted a study of the potential impact of CBDCs on the stability of the country’s banking system. Experts have concluded that the digital currency poses no threat to the financial system’s stability and is capable of signaling problems within the industry. However, 66% of Americans still express concern about the launch of CBDCs, fearing a loss of financial privacy.
